As a business owner, you are likely to be approached by other companies or individuals interested in purchasing your business. While it is flattering and tempting to respond immediately. It's essential to take the time to assess the situation, conduct research and make sure that you are in the best possible position.
Here are a few key things to keep in mind when you receive an unsolicited offer to buy your business:
Are you ready to evaluate an offer for your company?
In addition to financial considerations, it's important to think about what you want for your personal life after the sale.
Owners need to be prepared on a personal level. This means having a solid understanding of their reasons for selling. In addition, it is essential to have a clear plan for what will happen after the sale is complete. For example, do you want to stay on or want a clean break? With proper preparation, owners can ensure that they are ready to transition to a new phase in their lives.
Therefore, if you have not considered selling or are not ready, it's fine to ask potential buyers to reconnect in six months while you take the time to consider what comes next for your business.
Who is the buyer?
As a business owner, you may receive an offer to buy your company one day. While it can be tempting to accept the first offer that comes your way, it's essential to evaluate any potential buyer carefully. There are a few key factors to consider during the evaluation process.
First, consider the financial stability of the buyer. Do they have the resources to follow through on their offer?
Second, look at the track record of the buyer. Have they been involved in any previous successful acquisitions?
Finally, think about what you want for your business in the long term. Is this buyer likely to maintain or grow your company? By evaluating an offer, you can ensure that you make the best decision for your business.
As your business grows, so will interest in acquiring your business.
Remember, M&A is very time consuming and distracting; therefore, responding to everyone that approaches you via your inbox will divert your attention from running your business.
Many financial aggregator firms whose business model is predicated on acquiring businesses below market value from entrepreneurs inexperienced in M&A.
Therefore when you get an approach, remain cautious.
Who is the company,
who is the person approaching you (e.g. are they a fresh graduate or a seasoned M&A professional) and
is there evidence that they have researched your business at all?
These basic steps will help you quickly filter the genuine buyers from the opportunists.
What is the market value of your business?
Before entering negotiations, make sure you know your business value so you are adequately prepared and you can adequately appraise and negotiate a purchase offer.
How do you respond to an interested buyer?
Firstly, it is very common for businesses to be sold to buyers who make an unsolicited offer. Serious buyers will create a target list of companies they want to acquire to help them realise their growth strategy. During my time running M&A at an FTSE 100 software company, most of the deals we completed came from targets we identified, approached and negotiated a deal with.
When done right, M&A is a very efficient way to grow a business. By acquiring another company, businesses can quickly access new markets, customers, and technology. Additionally, M&A can also provide a way to boost revenue and profits through economies of scale. Furthermore, a well-executed deal can help create a competitive advantage difficult for other companies to replicate. As such, it is clear that M&A can be a powerful tool for driving growth.
However, when you receive an unsolicited offer to buy your business, it is crucial to consider the approach before making a decision carefully. There are a few key points to keep in mind during this process.
Who is the interested party, and what is their motivation for making the offer? Research who they are and their M&A track record, as well as how they are financed.
What is the strategic rationale for the acquisition?
Are they competitors or involved with competitors?
How much do they appear to know about your business?
If unsolicited offers/approaches to buy your company are something you are willing to consider. First, when speaking to potential buyers, never share any sensitive information about your business without a confidentiality agreement. Use the first introduction call to understand who the interested party is and what their interest in your business is.
If their proposition is of interest, the next step is to sign a non-disclosure agreement. This allows you to answer their questions and share additional information about your business in confidence.
Risks
While the good actors outweigh the bad, some firms prey on owners' lack of M&A experience to make unsolicited offers well below the market value. Therefore it's sensible to be sceptical and evaluate each approach before responding. In addition, do not share confidential information without a confidentiality agreement.
Things to consider when dealing with inquiries
When it comes to selling your business, you are in command, and you can choose when and to whom to sell to. Therefore you have two main options:
Accept an unsolicited offer or;
Run a formal M&A sales process.
A formal M&A process is more time-consuming and expensive than an unsolicited offer. Still, it gives you the chance to solicit offers from multiple buyers, ensuring that you get the best possible price for your business. The biggest factor in determining whether to run a process is your valuation. If you have an attractive business with plenty of interest from serious buyers, an auction or formal process could be advantageous.
An unsolicited offer can be tempting, especially if the buyer is a good fit for your business or is offering a high price. However, an unsolicited offer most likely will not allow you to shop around for the best deal.
Again, taking the time to prepare will help you decide the best approach.
Don't be pressured and avoid kneejerk reactions.
In today's fast-paced world, it's easy to get caught up in the moment and make impulsive decisions that we later regret. That's why it's essential to always be mindful of unsolicited offers and avoid making any decisions before taking the time to think things through.
When you're running a business, it's important to identify opportunities when they arise. However, engaging with unsolicited offers without doing your due diligence can lead to problems.
It's always better to err on the side of caution and take the time to evaluate an opportunity before moving forward thoroughly. Serious business buyers are used to this and will usually give you the time to ask questions and consider their approach seriously. Be wary of those that try and impose time pressures during the initial stages.
Don't be afraid to pause and get advice.
When you receive an unsolicited offer to buy your company, it can be tempting to simply accept the offer and move on. However, it is vital to get professional advice before making any decisions.
There are several factors to consider, such as the current market value of your business, the terms of the sale, and your personal situation. Experienced advisors can help you understand all of the implications of selling your business. They can provide invaluable guidance and negotiate on your behalf with potential buyers.
With their help, you can ensure that you make the best decision for yourself, your business, and your family.
In Summary
An unsolicited approach to acquiring a business is common. However, serious business buyers will have a targeted M&A list and will actively engage with companies directly.
Do your due diligence on potential acquirers to validate there is real interest in your company. Identify who the buyer is and are they offering a fair market price.
If required, seek advice from advisors who can negotiate on your behalf to get you the right price and deal terms.
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