How To Advise Clients on Unsolicited Offers
By: Bill Conway
M&A volume and valuations have moved closer to reality in recent months, but the capital available to execute M&A transactions remains elevated. This is simply a function of private equity funds needing to deploy capital and the strategic buyers’, with cash on their balance sheets, pursuit of growth and market share. With increased competition, more buyers are reaching out to potential acquisition targets directly in hopes of bypassing a competitive auction process, which is likely occurring with your clients. So how do you as a trusted advisor respond when your clients ask: “What should I do? Do the terms and value presented reflect current market conditions? Is the group behind the letter the best buyer?”
To provide some perspective, we offer a few simple informational nuggets:
- Founders and business owners have the opportunity to sell a business maybe once in a lifetime.
- Sellers can generally either maximize economics or terms in an M&A transaction, not both.
- Without competition, it is impossible to know if the offer represents the best value, terms, or partnership available.
- Most, if not all, unsolicited offers are not “as represented”, given only limited information is shared and a “cursory review” of the financials and operations is performed.
- Healthy, competitive tension in an M&A process can result in positive seller outcomes.
- M&A transactions are not as easy as signing the unsolicited offer and contacting an attorney to “paper the deal”.
In recent transactions, sellers who have engaged our firm after receiving an unsolicited offer have experienced:
- Higher valuations than stated in the initial unsolicited offer.
- Alternative buyer options and structures, which are unknown unless pursued.
- Clear and effective communication of EBITDA adjustments, net working capital and other key deal points.
- More efficient transaction process for all parties involved.
- Client advocacy and an experienced professional approach.
Yes, the involvement of an investment banker costs money, but our experience in recent M&A deals would indicate the valuation upside and structural efficiencies gained more than justifies the associated fees. CCCA has modified the traditional investment banking fee structures to assist founders and private business owners to execute an M&A transaction resulting from an unsolicited offer.
So, what advice will you give your clients when they call to discuss receipt of an unsolicited offer?