Tip of the Week
The rumours of sharks in Calgary are true.
We are all part of the major economic adjustment that’s in progress. Every swing in the market cycle affects business owners differently, especially when it comes to selling a business.
Oil prices, the struggles over pipelines, viruses panics, tax burdens, and hostile political ideologies have reduced many Alberta businesses to the critical point of failure.
Over the last 30 days we’ve witnessed “sharks” making offers for longstanding businesses that have found themselves at that critical point.
“Sharks” are buyers hunting for weak or disabled businesses to buy for the lowest possible price. Prices that would have seemed very unreasonable just a few months ago and perhaps still unreasonable now. They appear in these market conditions looking for opportunities to buy businesses at steep discounts.
The offers of sharks are often premised around transferring everything positive about the business to the buyer for a minimal price and leaving the seller holding the debt and outstanding commitments. They are often focused more on the discounted value of assets now rather than the future earning potential.
Here’s how it often starts:
1. You get a call from someone you don’t know who tells you his team is looking for good businesses to buy — would you consider selling yours?
2. When you ask them why they are interested they provide a generic answer like “always looking for a good opportunity.”
3. If you ask them what they think your business actually does you might find out they don’t have a clue.
4. And: they seem to push for a meeting right away to get the process started and ask for financials and details about the business ASAP.
It can be exciting and/or uncomfortable to receive an unsolicited offer. If business is struggling, you might be open to possibilities you hadn’t considered before.
It’s important to avoid any kind of knee-jerk reaction. Here’s what you need to do first:
Confirm Who They Are
If it’s a fund or corporation, get their website. This will tell you about their specialty by industry and give an idea of their strength as a buyer. Maybe they’ve even bought some businesses or competitors you’re familiar with. If it’s a private individual, ask for some qualifying information that might suggest they are serious buyers (funds available, access to financing, business background, etc.).
If it’s a competitor, you need to be very careful with what you share.
Ask Them How Many Businesses They’ve Bought Before…
…and why are they interested in yours now? This can give you a sense of how they’ve approached deals in the past. On the other hand, some corporations, investment groups, and private individuals haven’t acquired businesses before and their processes are unrefined.
Don’t Send Them Information
Buyers need financials to start putting a proper offer together, but don’t provide anything yet. You need to put together a proper package of information that understands the buyer’s perspective. That way you put your company’s best foot forward.
Tell Them You Need to Talk to Your Team
We don’t mean your employees, even your high level managers. It can be upsetting for staff to learn that the business might be for sale (regardless of whether the deal gets done) because it increases uncertainty for them.
In this context, your team is your advisors. This normally includes your accountant, lawyer, and financial planner, but you might not need their help at this stage. The first priority is speaking to someone who has expertise selling your kind of business.
The majority of M&A Transaction Advisors or Business Brokers will provide an initial consultation at no cost. If you don’t feel comfortable with one advisor, call someone else.
Once you’ve shared your situation and discussed how they can help, the advisor can assist you with identifying whether you have a shark who will waste your time or someone who is serious about paying fair market value.
The key is that the M&A transaction advisor can help you understand how the buyer values businesses and enhance your ability to build the best transaction. The advisor can help separate the sharks from the fair buyers so you don’t end up wasting too much money, time and energy on a bad process.
Investing in a good advisor will always make you money. In the end, you will sleep better knowing you are protecting your future.
See below for some other resources you might enjoy:
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How Three Businesses Are Coping with the “Lockdown Economy”
Three business owners share their experience with business challenges and new government benefit programs.
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Canada’s Oil & Gas Industry Is Bigger Than Most People Realize
These charts compare oil & gas to aerospace and motor vehicle manufacturing in Canada.
This helps make clear why Canada has so many problems when the oil & gas sector is under strain.
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