HOW TO MANAGE UNSOLICITED INTEREST IN ACQUIRING YOUR BUSINESS

Have you received numerous emails or calls from Investment funds wanting to talk about your company (unsolicited interest in acquiring your business)? We can help equip you for those conversations. 

• Understanding the outreach, you receive.

• What investors look for in a company. 

• How companies are valued by investors.

• How to maximize the value of your company. 

While it is exciting and flattering to get the call, how you manage the process can make an enormous difference in the outcome 

There has been much written about what to do when you plan to sell your business in an auction process or on the open market. What is less explored is what you should do when you are contacted by someone seeking to buy your business when you did not have plans to sell. 

While it is exciting and flattering to get the call, how you manage the process can make an enormous difference in the outcome. 

If you decide to seriously engage with an unsolicited party’s enquiry, our core advice is to find a way to assert control over the process by creating a structure. This will give you the best chance to get a fair price and good deal terms. 

While every situation is unique, there are certain things that you should be aware of when it comes to dealing with unsolicited offers to buy your business: 

A “proprietary deal” lets a specific business buyer have a first chance to purchase a company before the company is marketed to other buyers by the owner or their investment bankers. Not ideal, however, many entrepreneurs’ curiosity and the suitor’s flattery may sound very compelling. (Become aware of the propriety deal). 

You might be contacted directly by an interested party or by an intermediary hired to represent them in a buy-side search. Sometimes who the purchaser is might be obvious, other times it can be hard to tell who the contact is representing. 

Purchasers can include financial or strategic investors (typically your rivals). Regardless of who they are, they are already familiar with the M&A process, which gives them an advantage in negotiations and outcomes. To level the playing field, it is important to prepare both yourself and your organization to maximize your value on the best terms. 

Knowing the value of your business will help you gauge whether the price you are offered is fair or whether you need to negotiate a higher price. M&A Advisors are well positioned to advise on this and to produce a business valuation or pricing analysis. 

When you are the party being approached, versus when you take the initiative, it is important for you to exert control over the process. If you do not yourself have experience in selling a business, it is a smart idea to engage accounting, tax, legal and deal advisors with demonstrated experience in M&A. 

Here is one way the process can go: 

1. Once a purchaser reaches out to you, if you are interested, we suggest both parties sign a non-disclosure agreement (NDA) to protect their interests. (Your M&A experienced Legal counsel can aid you in drafting or vetting another parties NDA) These negotiations can be an indication of how future interactions play out. 
2. Once an NDA is signed, the next step is to arrange an initial introductory meeting to assess fit. 
3. Ahead of this meeting, have you thought through what you might be asked and how you will answer questions related to your business? Will you attend the meeting on your own? Will you have your own M&A advisor attend the meeting with you? Will the buyer have several of their representatives (lawyers, Accountants, M&A Investment bankers and/or other third-party advisors) attend the initial meeting? 
4. You will be expected to share some general information about the business, including scale and profitability. After, we would advise that you request a high-level range of what the purchaser is willing to pay. Moving forward with discussions only makes sense if their offer matches your expectations. 
5. To keep everyone focused and on track, we recommend nailing down a timeline with concrete milestones that will help both parties determine whether the process should continue or terminate the process at each stage. 
6. The next step is to work toward creating a letter of intent (LOI). For this, the purchaser will ask to see some specific information. It is important for you, at this stage, to assess what is appropriate to share, especially in terms of any proprietary or customer information. With that said, you must provide enough detail for the purchaser to provide a meaningful offer. In our experience, the best information packages at this stage are concise and reference aspects of the business that would impact the potential purchaser’s interest and pricing. 
7. After the purchaser has reviewed the information provided, negotiations on an LOI begin. There are different approaches to this; we prefer the LOI to contain most (if not all) the provisions that will materially impact the deal, including both business and legal terms. While the LOI is not binding (i.e., legally enforceable), it serves as the basis for the actual sale agreement. 
8. Though a lot remains to be done, by this point the price and business terms should effectively have been finalized. Next steps would include confirmatory due diligence, where the purchaser validates the information provided, followed by corporate record and tax information review and the drafting of the purchase and sale agreement. We cannot stress enough how important it is to have a good M&A lawyer, your accountant, tax advisors and Investment bankers working for you through these processes. 

As you can see, selling a business is a complex process with many interconnected steps. While unsolicited offers can help bypass the process of finding a purchaser, they still require effort and time to achieve optimal results. 

The information presented above is only the beginning of considerations in a sales process. It is important to have qualified and experienced representatives on your team. 

Next steps?

ABOUT THE SHAUGHNESSY GROUP

We founded the Shaughnessy Group in 2017 with the purpose to help business owners successfully transition out of their most valued asset, their privately held, lower middle-market company. Since our founding, our clients have asked us to aid them beyond the sale or divestiture of a division or business, to help them to grow through acquisition and source debt to fund their acquisitions. www.shaughnessy.group