A version of this article was previously published in the June 2019 edition of Digger Magazine.
Mergers and acquisitions are commonplace these days, buoyed by strong industry interest and performance, availability of capital, and low interest rates.
In this world, it’s not uncommon for business owners to receive unsolicited offers to purchase their company. These can come from both financial and strategic parties.
Simply because an offer is unsolicited doesn’t mean business owners can’t be ready for it. Owners who plan ahead, present their company favorably, and prepare for potential discussions with buyers are more likely to extract higher values and achieve a higher probability of a successful transaction.
Here are steps you can take to be prepared if and when you receive an unsolicited purchase offer for your company.
Steps to Take Now to Prepare for Future Discussions
Understand How Your Business Is Valued
It’s easier to evaluate an offer when you have up-to-date valuation figures at hand. Knowing the value of your business and what’s driving that value is crucial in helping you more objectively evaluate your transition alternatives—and determine if an offer is a quality one. Perform occasional valuation assessments so that if you receive an offer, you can quickly determine if it’s worth further consideration.
Even if you aren’t interested in selling your business, this is a useful step. A solid understanding of your market value and valuation procedures can inform decision-making and help you continue to create value within your organization.
Evaluate Transaction Timing
Critically important, and most often overlooked—does the proposed transition timing align with your strategic and operating goals? No matter how promising an offer might seem, if the timing doesn’t make sense and your business isn’t available for purchase at this time, it’s important to acknowledge that up front. If you arrive at this decision, be sure to communicate it to prospective buyers to avoid misunderstandings.
Build a Bench of Quality Managers
The management team is frequently a company’s most valuable asset. Identify and build up a strong second-in-charge, and provide incentives for key employees to stay on. Financial buyers are often looking to invest in people or talent and want to see a plan in place as owners transition out of the business.
Develop a Growth Strategy
Buyers want to know what opportunities you’ve identified as well as how you plan to execute these opportunities. Implementing a financial and strategic plan that presents these goals, and being able to quantify and speak to your growth plan, can create additional value in a potential sale.
What to Do When You Receive an Unsolicited Offer
Request a Confidentiality or a Non-Disclosure Agreement
Requesting a confidentiality agreement or a non-disclosure agreement (NDA) should be your first step when fielding an unsolicited offer.
NDAs are industry standard for any serious discussions, and any buyer with a genuine interest will be familiar with and open to this request. A confidentiality agreement will give you assurance that any information you share with the buyer won’t be shared with other parties, including your competitors.
Keep the Initial Conversation at a High Level
It’s important to protect sensitive and confidential information regarding your business, especially prior to having a confidentiality agreement in place. Additionally, it’s recommended that you bring in an experienced professional for any in-depth discussions concerning due diligence documentation requests, transaction terms, and financing requests.
Ask Questions of the Potential Buyer
Due diligence during potential transactions is a two-way street. Use an offer as an opportunity to ask the buyer what they’re seeing in the market as well as which key characteristics and qualities they look for in companies to acquire. What specifically about your business was attractive to them? This feedback can prove to be valuable in evaluating offers you receive and can help you understand if a party is legitimately interested in acquiring your business.
What Not to Do When You Receive an Unsolicited Offer
Lose Focus on Operating Your Business
While an offer to purchase your business may be exciting, day-to-day operations should remain the top priority throughout all stages of the sale process. It’s easy for business owners to turn their attention to a potential sale process—and for the performance of their business to suffer as a result. A drop in performance might cause potential buyers to lose interest.
Feel Obligated to Share Sensitive Information
Be careful about how much information you disclose to any party who contacts you. You may not be familiar with the potential buyer or understand if their offer is a legitimate one. Don’t feel pressured to share any information you believe is highly sensitive or confidential in nature.
Do It All Yourself
Transactions are difficult and complex, and it’s important to assemble a team to assist you throughout a potential sale process. Experienced professionals can provide the advice and resources necessary to achieve favorable outcomes for not only yourself but also for your employees and company.
What to Look for When Engaging an Advisor
There are many aspects to consider during a transaction, and having the insight of an experienced team of advisors can provide you with a smoother process, and potentially, a better deal.
When evaluating professionals, it’s ideal to look for a firm that has the breadth of resources and expertise needed to guide you through all stages of the transaction. This means they’ll have a range of professionals on staff, including:
- A mergers and acquisitions advisor to guide you through the process
- A tax accountant to help structure a potential transaction
- A mergers and acquisitions attorney to help you draft and structure the various purchase agreements of the potential transaction
- A financial advisor to assist with estate planning
We’re Here to Help
To learn more about preparing your business for offers or for assistance navigating the transactions process, please contact your Moss Adams professional.