06 Oct What if I receive an unsolicited offer to buy my business?
We’re often contacted by business owners who say they want to talk about selling their business. Then we find out they have already been contacted by a potential buyer, or they may have received an offer. These unsolicited buyer advances often start a chain reaction that leads to the eventual sale of the business, but not necessarily with the initial buyer.
If a quality buyer approaches you, congratulations, it’s probably a signal that you are building a good business. There are many companies that are looking for businesses to acquire in order to advance their strategy or grow their portfolio. They have knowledgeable teams who sift through a lot of business opportunities, so as your business grows it’s probable that a potential buyer will approach you. However, most owners are not ready for an unsolicited offer and we think it’s unwise to rush into a one-sided business transaction that is being driven by the buyer and their advisors.
We recommend that you think carefully about three broad areas – your goals, the timing, and the type of buyer. Let’s expand that into some questions to think about.
- Are you planning to sell your business and are you ready to sell it now? Goals and timing are often linked.
- If you are ready to sell your business, do you have a price in mind, or a basis for valuation, and is it realistic?
- If you decide to explore a sale, should you negotiate with the party who approached you on an exclusive basis or look for other buyers by running a structured sales process, which may help you maximize value.
The Timing for You and the Business
- Is now the right time for you to sell? Is your business on an upward trend and do you have enough resources (capital, management talent, staff) to continue to grow it? You’ll achieve a higher valuation if your business is highly profitable and positioned for continued growth. Perhaps you would do better to raise growth capital or recapitalize by selling a minority or majority part of your business to grow it more before you sell the whole company.
- On the other hand, even if you were not thinking about selling your company, selling might be in your best interest if the offer is substantial or if the competitive landscape is changing and you realize that this is a good time to exit.
- What is going on in the capital markets and where are we in the M&A market, which typically runs in nine to ten-year cycles? Valuations are high in our practice areas (technology companies) but we may be approaching the end of the cycle.
Type of buyer
- Is the buyer legitimate and why do they want to buy your business? You need to make sure they aren’t using you to learn about your technology and customers before you engage. Understanding why a potential buyer wants to buy your business can also help you craft a win-win deal if you decide to move forward.
- Do the potential buyers have the ability (financial, experience, etc.) to acquire and operate your business?
- Are the potential buyers likely to take care of the parts of your business that are important to you, such as your customers and employees?
- How will the potential buyer value your business?
It’s crucial to think strategically, whether you are responding to an unsolicited offer or planning for a future exit. Each owner’s situation is unique and there will be pros and cons to selling or keeping your business. For these important decisions, it’s wise to talk to experienced M&A advisors such as Austin Dale Group, as well as attorneys and accountants. Your advisors can help you ask the right questions and understand the options before you engage with an unsolicited buyer.