M&A Deal Points | Testing the Waters

Many entrepreneurs consider running an exploratory sale process to “test the waters” for buyer interest and valuation. Often, these conversations happen when a company is growing quickly, or recovering from a difficult period, and leadership believes the business could command a much higher price in 12 to 36 months.

In many cases, the better strategy is to wait.

While exploring the market may seem harmless, launching a sale process before a company is truly ready can create several unintended consequences.

Risk of “Tainting” the Asset

Going to market too early and failing to close a transaction can create a negative perception among potential buyers. The same buyers who review the opportunity today are often the ones who will see it again later. If a process stalls or falls apart, it can raise questions about the business and make future discussions more difficult.

Lower Valuation Outcomes

If a company has not yet fully demonstrated its profitability, scalability, or growth potential, buyers will typically price that uncertainty into their offers. Even when founders are confident about future growth, buyers tend to value businesses based on proven performance rather than projections.

Reduced Negotiating Leverage

When a company is not fully prepared for a sale, it often enters negotiations at a disadvantage. Buyers may perceive the process as opportunistic or assume the seller needs liquidity, which can weaken the seller’s negotiating position.

Operational Distraction

Running an M&A process requires significant time and attention from leadership. Preparing materials, meeting with buyers, and responding to diligence requests can consume resources that might otherwise be spent strengthening the business and increasing its value.

These considerations also apply when responding to unsolicited acquisition offers. While it can be tempting to engage immediately, evaluating whether the timing aligns with the company’s long-term strategy is critical.

For many businesses, the most effective approach is to focus on building value first, strengthening financial performance, operational systems, and growth visibility. When the company is truly ready, entering the market with momentum can lead to stronger buyer interest, greater leverage in negotiations, and ultimately better outcomes for the seller.