4 Do’s and Don’ts When Approached With an Acquisition Offer
You have received an unsolicited offer to buy your business and it seems like something you might want to consider. What do you do now?
Given the huge amounts of money floating around the financial system right now, the desperation of private equity to place cash, and the fact that everyone is looking for a proprietary deal, almost every middle market business owner we talk to has received an offer to buy their business.
If you don’t want to consider an unsolicited offer (and we generally recommend that you do not), thank the group that made the offer and let them know that when the time comes to sell the business that they will most certainly be part of the sale process.
If You Receive an Offer to Buy Your Business, Consider These Things:
1) Don’t Sign Anything That Creates Exclusivity for the Buyer
If a buyer sees that his offer interests you, the very next request is usually that you sign a document (it can be called a variety of things – Indication of Interest, Letter of Intent, Term Sheet) that creates a binding condition that you do not talk to any other potential buyers for some period of time.
Don’t sign this document quite yet. Wait until you have contacted deal professionals. Let the buyer know that you may indeed give them a period of exclusivity at some point in the future, but it is not warranted right at this time. In other words, stall for a bit.
2) Do Make Some Calls
This is not the time to DIY. When you have an offer that seems attractive you need to assemble your deal team in order to evaluate the situation. This means that you need to call your investment banker/M&A professional, your lawyer, your accountant, and possibly a wealth manager. You need your people right now.
Hiring an M&A professional is critical at this time. You will need someone with a cool head to evaluate your business and simultaneously evaluate the offer. The M&A professional will ask questions about proposed terms and conditions (which are usually not spelled out up-front, but should be). Most importantly, the investment banker can play the role of bad cop. Business owners can be flattered and excited during this conversation and have a tendency to be overly accommodating.
3) Don’t Just Start Sending Out Information
Once you give them the message that you won’t be signing up for exclusivity, the next request will be for you to send them some “preliminary information.” The list will seem harmless (financial statements, org chart, etc.) but don’t go sending over information willy-nilly.
Let your investment banker review the items you plan to send. Remember, you never get another chance to make a first impression and you want everything to be accurate and pointing to a high valuation. In some cases, your banker may re-cast your financials or create a list of add backs, so that the buyer has a true sense of the company’s earning capacity.
4) Don’t Pooh-Pooh Your M&A Professional’s Advice to Try Other Buyers
Sometimes business owners don’t like the idea of approaching other potential buyers at this time. They think it might upset the buyer they have and cause them to walk away.
The only way to maintain the upper hand and push a buyer to give you the best value and terms is to create competition within a sale process.
No buyer worth their salt should be surprised when you say that you want to start a process. They will be unhappy, yes, because this means that they will have to pay more for your business, but if they are really interested in your company, they will play along.
Receiving an offer to buy your business is an exciting time for an owner. Do things the correct way to make sure that this is a great experience.