The M&A market is very competitive, with multiple buyers often bidding against each other to acquire the same business. This has led to investors aggressively pursuing proprietary deals so they can avoid competition from other buyers. As a result, business owners are frequently receiving letters, calls and emails from investors who are interested in acquiring their business. Business owners need to decide what to do with these solicitations. Do they ignore these unsolicited advances, or do they take the call and see if they can get a great deal? Consider these factors when receiving these types of solicitations:
1. Does the buyer know your business?
Does this buyer understand your business well enough to suggest they are seriously interested? It is difficult to get much information about private businesses beyond what exists on their website. Were you approached by a direct competitor or an informed industry participant? If not, you are more than likely engaging with an investor who is soliciting a broad list of target companies, hoping to find takers. If you are prepared to entertain a conversation about your business, focus that discussion on precisely what is driving the particular buyer’s interest and how much research they’ve done to support their interest. Odds are, they haven’t collected enough supportive evidence to justify a serious interest as a legitimate buyer.
2. Are they the best buyer for your business?
You understand your business and the competitive landscape of the industry in which you operate. When being approached, you should be able to determine if there is a strong strategic fit between the potential acquirer and your business. If there is a compelling fit, then you might be talking to one of the best buyers for your business. If it is not a compelling fit, or it’s a financial buyer without a relevant portfolio company, you need to ask yourself, “Why would they be interested in my business and would they pay top dollar for it?”
3. Is this buyer positioned to pay the highest price?
Buyers who know your business, who operate in the same sector and have a strong synergistic fit with your business will typically pay the highest price. If they don’t fall into this category, you are likely talking to a buyer who ultimately will not pay you a full valuation for your business. Are you willing to sell your business at below-market value? Engaging with the wrong buyer on a “one-off” basis will typically lead to an underwhelming offer.
4. Are you prepared to sell?
A common mistake made by private business owners is the “knee-jerk” reaction to an unsolicited approach from a potential acquirer. You shouldn’t commence a sale process simply because someone knocked on your door and expressed interest in your business. The amount of time it takes to build a great company merits being deliberate about planning for the exit. When is the right time to sell your business? Once you know the answer to that question, plan accordingly. If it isn’t the right time to sell, do not wade into those waters without a solid reason for doing so. If it is the right time, move forward in an organized an professional manner.
5. If you are prepared to sell, is this the best way to proceed?
If you’ve made the decision to sell your business or are contemplating a sale, you need to determine the best way to proceed. For most privately held companies, the answer is a thoughtful and organized approach to the market. Determine your objectives in a sale (e.g. maximize value, protect employees or culture, find a financial partner to help you grow, etc.) and once you understand your objectives, approach the right buyers that align with those desires. Working with one buyer is typically not the way to achieve your objectives. More often than not, “clearing the market” will result in finding the best fit and maximizing value.