(or how to you differentiate between a “prospect” and a “suspect?”
I get offered dozens of opportunities a day from every part of the globe. I cross off some immediately because they are dying industry segments……..some others because of geography or market conditions…………but I also have to sort out the “prospects” from the “suspects,” and so will you if you are being offered companies for sale.
It takes an enormous amount of time, energy and resources to evaluate potential acquisition targets, so before I commit resources to doing it, I want to make sure the company is actually “for sale.”
If an intermediary asks you to pay the fee, if s/he is short on details, these can be potential red flags that the intermediary is offering you a “suspect” property. An opportunity that he “thinks” can be acquired, but has no actual mandate or permission from the seller to offer the property.
Sometimes great deals can be made this way, but more often than not, you’ll end up pulling in your line at the end of the day, your bait will be gone, and there will be nothing on the line.
Obviously, as you are observing in the news, economic downturns lead to more opportunities for firms and people that aren’t so reliable, as well.
Never pay an intermediary in advance for information about a company. I’ve seen some folks ask for a “due diligence” fee.
On occasion, after an offer is made and accepted, subject to due diligence, financing, or whatever, a seller might ask for a break-up fee, to reimburse his costs during this period, and that is subject to negotiation.
There are times when this step is understandable, if the potential for the possible sale information becoming common knowledge might harm a seller’s reputation.
In summary, verify that your prospective acquisition is a real prospect, or understand the risks to your effort, if they are not.