Having been in business for more than 20 years, you recently started thinking about when to sell your company. As business owner or CEO, you get a phone call out of the blue from a reputable company that has targeted your organization as a prime acquisition or merger candidate. You’re intrigued with the buyer’s initial pitch. The phone chemistry was good. And upon brief contemplation, you decide to pursue this seemingly once-in-a-lifetime opportunity. It’s flattering to be pursued and before you know it, you’ve divulged information about your company – maybe too much information. Have you made a huge mistake? It’s important for business owners to be prepared to respond to unsolicited buyers, especially when they’ve begun to consider selling their company.
What information should I initially divulge?
Since strategic and financial buyers will need some information, it is best to have the potential buyer first sign a confidentiality agreement. It is not a good indication if the potential buyer balks at signing one, and you should immediately question whether it makes sense to go any further.
If you decide to continue the discussion without a confidentiality agreement, be careful to provide only information that can’t hurt you if the buyer ends up not being the right buyer for your company. While it is typical to provide buyers with some high-level financial and operational information and a blind summary of your customer base, give them only enough information so that they can make an offer for your company.
Who can help me negotiate with buyers?
Buyers love to send an unsolicited bid to a company and then find out the target is not represented by a mergers & acquisition advisor, thus no pursuance of other buyers. This is a very common negotiating tactic for the buyer. As a potential seller, do you want to find yourself in this negotiating position? While some sellers can overcome this disadvantage, they are the exception to the rule.
Hiring an experienced merger and acquisition advisor will send a clear message to the potential buyer that there is going to be competition; if they want to acquire your company, then they will have to put their best deal on the table. The M&A advisor will determine what your company is worth, take over negotiations with the unsolicited buyer, quickly prepare a compelling confidential information package, contact other buyers, position you to receive multiple offers and lead the Letter of Intent negotiation process. Furthermore, having an advisor to quarterback this process will lessen your workload and enable you to focus on moving your business in the right direction.
If you decide to go it alone without a mergers and acquisitions advisor, it is important to at least seek the advice of your accountant and an attorney experienced in mergers and acquisitions.
How do I get the maximum value for my company?
If your primary objective is getting top dollar for your company, then negotiating the sale of your company with one buyer may not be in your best interest. Therefore, the process should be opened up so other potential buyers can be quickly pursued. This is the only way to ensure that you have received fair market value for your company. Even if top dollar is not your primary objective, you will have a greater likelihood of finding the best synergistic and cultural fit if you have conversations with several potential buyers.
Should I consider planning my Exit Strategy?
Although successful deals can occur with unsolicited buyers, business owners need to clearly plan their exit strategy – preferably with a Certified Exit Planning Advisor (CEPA) – in order to determine which approach is in their best interest. Exit planning will help a business owner to:
Determine personal and financial goals; the latter meaning how much is needed from the sale of the company on an after-tax basis to support your future lifestyle requirements
- Develop a stronger management team
- Obtain reviewed or audited financial statements for the past several years
- Obtain business assessments that will increase profitability and value
- Obtain legal assessments that will mitigate potential value-decreasing risks that may reside within your company
With an exit strategy in place, your company will be in good shape to be sold. After all, you don’t want to spend the rest of your life wondering if moving forward with that one unsolicited buyer was the best decision and if you could have done better.