We have been through the process where an unsolicited buyer shows up on the radar before the Owner begins preparing for the sale of his business. We have learned to consider several key details.
Scenario 1: You decide it’s time to sell your company and you begin working through the process to do so.
Scenario 2: An acquirer comes knocking and wants to discuss the potential acquisition of your company.
The pressure on the business owner tends to be a lot lower when the he is well prepared and equipped for negotiations based on market conditions than when a buyer simply approaches the owner “out of the blue.”
The two scenarios above each have very different negotiating dynamics and create different stresses for the owner.
BUYER’S ADVANTAGE
When a buyer approaches the owner directly, the buyer is virtually always in the driver’s seat.
The buyer knows what they are looking for — they have already contemplated what they want in terms of the business model, rates of return, risk profiles, etc.
The buyer can talk to as many opportunities as they can find — with very little consequence.
An owner might find themselves open to the proposal (after all, everything is for sale for the right price) and suddenly wrapped up in early discussions and negotiations about a potential transaction. Inevitably, many owners become very emotionally invested in this process.
But the buyer can simply say “no thanks!” anytime, for whatever reason, and move onto the next opportunity — having already weighed the owner’s best kept confidential secrets.
PREPARING FOR A SALE
Outcomes tend to be better when the owner goes to the market rather than when a small part of the market (the unsolicited buyer) goes to the owner.
When the owner has come to the decision to test the market for the right buyer, the process of working through a valuation and building a confidential information memorandum (corporate profile) solidifies the decision to move forward.
The preparation of this data presents the business with “best foot forward”, and this encourages better deal outcomes.
The work of getting a company ready to take to market empowers the owner with knowledge of value, market factors, possible due diligence issues, current deal structures, and other elements of an M&A transaction.
This all triggers the owner’s resolve to face different types of buyers, opportunities, rejection, and the emotional roller coaster that goes with trying to get the deal closed.
KNOW YOURSELF
The owner’s personal rationalization process has to consider many things, and they are forced to ask themselves a lot of serious questions:
- What is the state of my business?
- Where am I in my career path?
- What do I do after selling the company?
- How long will I work for the acquirer?
- What about family members who currently work in the business?
- How much will I get for my net proceeds?
- Will that provide the quality of life I want after selling?
- What will my life look like?
- What will I look like?
- Who will I become?
In the case where owner makes peace with all these questions, then the decisions, time, and energy spent grooming and prepping to complete a strong deal supports that decision. Self-knowledge is critical.
TOP SECRET
Responding to an unsolicited buyer becomes a rather large secret (and sudden workload) that can only be shared with a few key team members. Confidentiality requires definite planning and consideration as having staff and clients find out about what’s going on can trigger troubling consequences.
If an unsolicited deal does not get completed, the owner has to consider how much of his company information will be out in the marketplace. How might that hurt the business? Can the business go back to the regular day-to-day operations?
CONCLUSION
These potential impacts on the business can be reduced substantially by engaging a professional M&A advisor to lead the process, maximize your readiness, and bring multiple buyers to the negotiations table. When one decides the business is not a good fit the owner does not have to start again from scratch. The momentum towards a closed transaction continues.
“An offer” very rarely becomes “the offer.” Many M&A deals never get completed because there are so many issues involved. It pays to have a qualified advisor.
