How to beat estate agency blue chips in a business bidding war

If you run an independent agency and have tried to grow by acquisition, there’s a good chance you know how this goes.

A broker sends over a business that looks interesting. Right patch, a solid lettings book and a team you’d be glad to keep. You do your homework and make a sensible offer, then find you’re one of six or seven buyers, including a couple of corporates who can pay more. You stretch the spreadsheet and still miss out.

You can’t be annoyed at the sell-side broker, frustrating as it is. Their job is to get the seller the best deal, and on the open market the deepest pockets often win.

Independently minded

Owners often tell us they’d prefer to sell to an independent, and some, particularly the micro agencies, say they’d never sell to a corporate. Small business owners care deeply about their staff, their landlords and the name above the door, and often feel a local independent will offer better continuity after the sale.

But preference only goes so far. If the independent’s offer is 30% below the corporate’s, you can’t blame the seller for taking the higher one. I’m sure you’d do the same. The gap is rarely that wide, but even a small one can sway the decision.

Auction talk

The simplest way to avoid being outbid is to stay out of the auction. Most owners who’ll sell in the next few years haven’t gone to market yet, and many haven’t decided to sell at all. Speak to them first and you’re in a one-to-one conversation, not a bidding war. You’ll finally have time to think.

That’s the approach we take for our buy-side clients, and it works. One client is now on their fifth acquisition with us in a year, in an area with serious competition. A few things separate the buyers who complete from those who don’t.

Know what you can afford before you start. Agree with your accountant and lender what you can fund and what a deal needs to look like to pay back, before there’s a deal on the table. Finance takes time to arrange, and owners can tell when a buyer isn’t ready. Those delays cost you credibility early.

Define your patch, then speak to everyone in it. Timing is everything. The business that isn’t for sale today might be in 18 months, after a key member of staff leaves or another round of regulation lands. Some of our best deals started with an owner who had no plans to sell.

Be credible. Owners want to know you’ll complete, especially if it’s your first deal, so show financial and operational capability. If you’ve bought businesses before, offer references from previous sellers and staff who stayed on. Remember, every touchpoint in the process adds to or detracts from how your offer is received. We create buyer profile documents to help our clients demonstrate this, and I’d suggest you do the same.

How to win

You may not win on price, but what else can you offer? Plenty. Price is only one part of an offer. Here are a few to consider:

• Sellers weigh how much they’ll receive on completion, how much is deferred and what they need to do to get it. A cleaner deal with more certainty can close a bigger gap than you’d think.
• An owner who makes their own decisions can usually move faster than a corporate going through an investment committee with deep due diligence requirements.
• The seller’s next step. Ask whether they want a role, a short handover or to walk away on day one, and build your offer around the answer.
• Add-ons. Listen to the seller and look for other ways to add value to the offer, such as future referral agreements, freezing landlord fees for 12 months or open-book reporting through the deferred period.

Independents can win against bigger buyers. They just rarely do it by waiting for the right business to come to market and hoping to outbid everyone else.

Author bio: Leon Gorman is a Director of Think Acquisition, which helps independent estate agents, letting agents and property services firms grow through acquisition across the UK and Ireland.