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I have found a big difference between being approached by someone to buy your business and actually selling it.

Consider the Riverside Group's experience in 2009. Riverside is a large, successful private equity outfit that specializes in buying companies, streamlining their operations, jamming them together with other complementary companies, and selling them for a profit.

In its 2009 annual report, Riverside claims it considered buying 4,228 companies during the year. It walked away from 2,913 and sent a screening memo to the other 1,315.

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Of course, when you get a letter from a big, international private equity company saying it wants to buy your business, you might be tempted to break out the bubbly and head down to the Ferrari dealership. But don't be too hasty. Of the 1,315 companies that got the letter, 968 were eliminated before Riverside even set foot in their office or plant. In fact, Riverside only visited 347 companies.

Of that 347, Riverside provided 63 with a formal letter of intent (LOI) to buy their business, while the other 284 were left asking what they said wrong in the meeting.

Surely an LOI is worth celebrating. At the LOI stage the acquirer has spelled out the purchase price it is willing to pay, the working capital it requires to be left in the business at closing, the operating covenants, the due diligence check list … It wouldn't proceed to that level of detail if it wasn't planning to follow through on its offer to buy the business. Or would it? Well, of the 63 companies that got an LOI from Riverside last year, only 15 were actually acquired, leaving the other 48 standing at the altar.

In my experience, selling a business is a bit like an elimination-round tennis tournament. A lot of people make it to the tournament, but as a player moves from one round to the next, the challenges get tougher, and at each stage a lot of good players get eliminated.

Special to The Globe and Mail

John Warrillow is the author of Built To Sell: Turn Your Business Into One You Can Sell . Throughout his career as an entrepreneur, Mr. Warrillow has started and exited four companies. Most recently he transformed Warrillow & Co. from a boutique consultancy into a recurring revenue model subscription business, which he sold to The Corporate Executive Board in 2008. He is the author of Drilling for Gold and in 2008 was recognized by BtoB Magazine's "Who's Who" list as one of America's most influential business-to-business marketers.

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