You got “The Call”. Someone wants to buy your company!
You're flattered and excited. You might even be thinking about selling, and you want to hear what they have to say.
STOP!!
Unsolicited Offers Favor the Buyer
Responding to unsolicited offers to buy your company, before you’ve formulated your own business sale strategy, is risky and expensive. It rarely ends well for the seller. Here’s why:
Business Buyers Have Leverage
The buyer is prepared and you’re not and, knowing they initiated the discussions, they take comfort in the fact that you’re probably not talking to anyone else. Indeed, one of the reasons buyers contact business owners with unsolicited offers is to catch them unprepared and to avoid having to compete with other potential buyers. They can be patient in their negotiations and drag out the process in a way that puts pressure on your time and focus. Meanwhile, they've probably made unsolicited offers to other business owners and they're just waiting to see who will give them the best deal.
What's Your Company Really Worth?
The only way to know what your company is truly worth is to expose it to a market of potential acquirers. When you’re negotiating with just one potential buyer, business valuation tends to focus on your historical financial metrics and “typical” valuation multiples as opposed how much they’re truly willing to pay. You can tell yourself that you’ll walk away from the deal if you don’t get your number, but that’s easier said than done once you’re deeply engaged in a sale process.
Due Diligence Risk
Buyers have little incentive to actually close a deal in a reasonable period of time. Remember, they approached you so they’re pretty confident that you don’t have a well-considered business sale strategy in place. When you’re following their lead, due diligence lasts longer and much of the business integration planning happens on your dime. As the courtship gets drawn out, the buyer’s circumstances might change (management change, a bad financial report, etc.) or your circumstances might change, especially if the sale process is distracting you from growing your business. Even if the initial unsolicited offer is strong, every flaw the would-be buyer uncovers in due diligence becomes a reason to adjust that price down before closing. Part of a winning business sale strategy is rigorous, pre-sale due diligence preparation to make sure there are no surprises after a Letter of Intent is signed.
Tainting the Market
If you engage with a buyer before you’re ready and the talks break down, as they often do, you may have permanently damaged a relationship with a company that could be your ideal buyer at some time in the future. By walking away from a deal or, worse yet, being rejected by the buyer, you’ve made a future sale less likely. It’s difficult to get a buyer to take a second look at a company; they assume that the business is somehow weaker or the owner is more desperate. They rarely offer better terms than they did the first time around. If word that your deal fell through spreads through your industry, it might be difficult to get other potential deal partners to the table.
A Better Approach to Selling Your Company
If you own a successful business, people will call with unsolicited offers. Here’s the right approach to responding to those calls:
Learn as much as you can about the potential acquirer while disclosing as little as possible about your company. Remember, they called you! What’s their strategy? What’s their timeframe? How does your company fit in with their plans? Do they have financing lined up? File that information away for future use.
If they appear to be a viable acquisition partner and you would consider selling now, tell them you’ll think about it, hang up and immediately begin building your transaction team. Don't sign an NDA until you have talked to your attorney and, whatever you do, don't share any financial information until you've talked with an experienced merger and acquisition advisor. This also might be a good time to check in with your financial advisor to see how a sale would impact your overall financial plan.
See our article on Selling A Business - A Checklist for Business Owners.
When you have a realistic view of your company’s value, a plan for engaging with potential buyers and you’re well prepared for due diligence, then you can resume the conversation with confidence.
If you’re not ready to sell, take this opportunity to begin planning your sale, recognizing that you will exit your business someday - voluntarily or involuntarily. Having a business sale plan means that you’ll have options for preserving the value of your company when the time comes.
About Venture 7 Advisors:
Venture 7 Advisors is a team of merger and acquisition advisors who assist the owners of small and mid-sized companies to plan and complete the sale of their business. We find the best buyer to meet each business owner’s financial and legacy goals. We represent clients in consumer products, distribution, manufacturing, B2B services, construction, telecommunications, and eCommerce from offices in Burlington, Vermont, the Hudson Valley, New York, and Western Massachusetts.
We're here to talk about your situation, provide information, discuss your options, and put things in perspective. Contact us at any time:
Bryan Ducharme
Managing Partner
Mobile: 802 578 6462
Scott Hardy
Partner, Master Entrepreneur