You’ve Been Approached by an Interested Buyer – What Should You Do?

Each year, thousands of companies across North America get approached by a company or individual interested in acquiring them. These can include everything from strategic corporate buyers to financial buyers (private equity firms, search funds, consolidators, etc.) and individual investors.

If someone approached you with an interest in buying your company, would you know what to do? Your company may not be for sale, but you’ve probably said a dozen times, “of course for the right price we’d give it serious consideration”.

After you get past the initial good feelings that someone appreciates your work in building a recognized position in your market, it’s time for a reality check. What are the chances that the first company to come along and make you an offer will be your best buyer, or will present you with the best offer? Or even their best offer?

Maybe the timing is right. It seems like a good fit. Perhaps the idea of selling-up into a larger firm that can accelerate your growth is appealing as you’ve been struggling to achieve growth while being substantially undercapitalized. Maybe you are thinking this is an opportunity to reduce your risk, take some money off the table and give yourself an exit option. You begin to think perhaps this is your real buyer.

What’s your company worth? What is the right price? What are companies similar to yours selling for these days? What elements of your company will be additive or will detract from your value? Who else might find you of interest? How can you negotiate a better deal with no competitive bids? Is there a way you can get competitive bids without losing the initial offer? Is your best option to say no but to leave the door open, or are you burning a bridge?

If you decide to carry conversations further with this interested buyer, experience shows you shouldn’t try and manage the process on your own. It’s a massive undertaking, takes a tremendous amount of time away from growing your company, can be mentally and emotionally exhausting, and is fraught with the possibility of mistakes that can be devastating to the deal. Without realizing it, you may leave money on the table, or put yourself at risk post-transaction to not collect everything you thought you’d be getting.

Following are just a few of the things to consider in this unique situation:

1. How does the offer you have been presented with compare against comparable public and private deals in your market sector? What are your shareholders’ expectations? It is important to determine whether the offer is fair and reasonable or whether you owe it to your shareholders (and maybe your employees and customers) to explore the broader market. If you choose to do that, you need to proceed cautiously. It is important to understand how to (and have the resources to be able to) manage the process while simultaneously ensuring your potential buyer remains interested. It is important to understand what your company is really worth. Many shareholders have expectations on valuation that are completely out of line with what is happening in the market. It may be that the offer you have received is better than you realize, or a trial balloon to see if you can be bought at a bargain, or an inflated offer to get your attention and hook you into going down the rabbit hole to the exclusion of other potential buyers.
2. If the decision is made to explore other opportunities in the market, it will be imperative for you to get ready by analyzing current operations, and understanding the value enhancers that, if improved, will increase the multiple at which you sell. Based on your analysis, you may decide it is best to work on these first, and then revisit the process after several quarters of improving results.
3. If a go-to-market decision is more immediate, it is important that you understand how to prepare and package the many pieces of information that interested buyers will ask to see and ensure that it is put together to highlight your strategic assets. It’s also important to understand what kinds of information can be shared at different milestones in the process; most companies trying to work alone give up too much information too early in the process to their detriment. As each buyer has a unique reason on why you may be important to them, you will likely need to prepare slightly different versions of materials that emphasize different attributes of your company depending on your fit with the buyer.
4. An experienced buyer is adept at the acquisition process and skilled at negotiations. The buyer may have done one, two, or many acquisitions, while this may be your first time through the process. Are you confident that you won’t get out negotiated at the table? For most sellers, it is critical to have skilled representation by an advisor who has experience in your market.
5. A common trap is to sign a great offer only to have a large part of it clawed back in the due-diligence phase, prior to the close of the transaction. Lack of preparation, or naive negotiating is almost always painful to the seller.
6. Buyers will request a great deal of information from you and will often want it fairly quickly. It can be detrimental to you if the buyer has to continually educate you on any of these requests or milestones they set up. Their positive first impression gets eroded quickly (as does their valuation) if you don’t seem to have your act together.
7. You will need to consider how you will manage this project while continuing to focus on growing your company. It is extremely important to address this point. You will see the buyer decrease their offer if during the process your results decline. “They would have been better but I was focusing on getting you the information you needed” doesn’t cut it.

The process from deciding to sell, to accepting an offer, to getting through due diligence, and finally to closing the transaction, is full of ups and downs. You will want someone experienced in the process to act as a sounding board and to provide you with coaching and recommendations through the process. Buyers make strategic decisions to acquire companies based on a series of good impressions. If your story is inconsistent in the months of discussion, you take too long to answer simple questions, or your information has to be restated for any reason, you may see their interest go away; you WILL see their valuation decrease.

Whether you are contemplating selling your company now or at some time in the future, you should always be ready for that phone call and know immediately how best to respond. Know what your company is worth in today’s market. Understand what enhances or detracts from your value to various profiles of buyers.  Work with an advisor who can help you with the process to qualify and validate the buyer. Serious buyers like a company to have professional representation, while bottom feeders hope that they can convince the seller that they know the market. Whenever possible, consider getting competitive bids as it improves value, results in cleaner transactions, and provides you with the opportunity to consider buyers who might have a better chemistry post-transaction with the team you’ve invested years in building.

If you are approached and do wonder if it might be a good opportunity, call us. We guarantee that the value we bring to your transaction will be far greater than the investment you make in our expertise.

If you would like to discuss your unique situation with us, please schedule a confidential call.

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