Responding to Unsolicited Offers to Buy Your Company

As the owner of a successful mid-market company, you probably receive numerous inquiries throughout the year from larger corporations, private equity firms, and competitors looking to acquire your business. Most of these queries are unqualified “fishing expeditions” looking for information, but some could be indicative of genuine opportunity and, at the very least, reason to begin preparation for a future transaction. There is more money than ever being spent on corporate acquisitions, creating greater competition for potential M&A activity around quality, profitable companies, like yours. Some buyers may seek to beat the competition by reaching out before you think about selling, while many business brokers are on the hunt for any indication of sales interest before they even have a potential buyer in mind. Unprepared engagement with either of such type of inquiries is good for the buyer, but not for the seller—unless you are armed with the right information, questions, and evaluation tools to give you the upper hand. Knowing if and when you are interested in selling your business is key. Putting in the time and leg-work to prepare your business to enter such discussions in necessary. And doing so with a strategic plan that gives you the leverage to maintain control and maximize value is the standard you, your family and your shareholders deserve.

Are you prepared to evaluate an offer for your company?

• • Do you know what your business is worth today?
  • Do you know which companies and firms are acquiring businesses like yours, and how they have valued those companies?
  • How do you evaluate and compare an offer from a private equity firm?
  • Do you know what your personal wealth objectives are, and how much relies on the successful sale of your business?
  • Have you evaluated the risks and potential rewards of waiting to pursue a transaction in the future rather than in current market conditions?

Whether you have the answers to all these questions or not, there are things you should keep in mind before engaging with an unsolicited offer. No matter how attractive an offer may be, running a competitive sales process will most likely create better valuations and terms, as well as giving you greater control and leverage over the process. Also, if timing is your main concern, thought it may seem counter intuitive, entering negotiations with only one potential buyer often ends up taking longer than if you begin that complicated and sometimes tedious process with multiple bidders in play.

Things to Consider When Dealing with Inquiries

• • The first buyer almost never pays the highest price and is almost never the eventual acquirer
  • Don’t focus on offer price, net proceeds are what matters
  • Not all structures are created equal – highest offer isn’t always the best
  • Comparing two offers can be like comparing apples and oranges
  • How and when should you consider an “Earn-Out”
  • It takes essentially the same amount of work, time and effort (sometimes more) to close a deal with a single buyer as it does to solicit interest from several potential buyers simultaneously
  • You need a competitive process to maximize value, terms and maintain leverage to get a deal closed in a timely fashion
  • How to use an advisor to wear the “black hat” in negotiations, regardless of whether talking to one or several parties

The time to prepare for and understand what your business is worth is before you receive an over-the-transom offer to buy your company. The current M&A market is unbalanced, with excess capital and a scarcity of promising acquisitions opportunities. Remain cautious before committing to a single prospective buyer and strongly consider the added value of running a competitive sales process with experienced advisors to guide you from strategic plan to closing. 

Whatever your timing, strategy, and preparedness level, a good advisory partner can provide the insight and planning necessary to get you better equipped for the deal you’d like. What sets Dunn Rush & Co. apart from our competitors is that before joining our team, every one of our managing directors has been on the client side of selling a mid-market company that has gone through a sale transaction. 

We are uniquely positioned to manage both the logistical and emotional process that our clients are going through, providing the insight and analysis that we’d wished we had when we were in your shoes. This enables our advisory team to free the owner/operator from getting consumed by the process at the expense of the business itself—allowing our clients to remain focused on maintaining smooth operations, stable numbers, and unwavering value.