What to Do If You Are Approached with an Unsolicited Offer
By: Jack Rusgis
Have you been approached by a buyer with an unsolicited offer to acquire your business? If so, then congratulations are in order! You may be feeling a wide range of emotions, from dissatisfaction with a potentially low dollar offer to excitement as the buyer has taken a genuine interest in the company you have built. However, as you review the offer, a sense of curiosity arises with the lingering question of what do I do when I am approached with an unsolicited offer to sell my business? Below, we break down the steps and various items to consider when approached with an offer to sell your business.
Know and Understand Your Situation
Before an offer crosses your desk, you should be familiar with your situation, both professionally and personally, to determine if the offer requires serious consideration. Is retirement on the horizon? Is your business family-owned and ultimately have no desire in selling to a third party? Have you taken your company as far as you can and are ready for your next venture? Has your company been experiencing rapid growth and subsequently received increased attention from market participants? What type of investor is bidding and what type of capital is desired? Are there any current unresolved issues that may cause harm to your company's value? Is your estate planning in order? Are there any restrictions that would preclude you from selling or any non-competes in place?
Knowledge and thorough understanding of both your current and future situation is critical in how and when to respond to an unsolicited offer.
If you have determined that the unsolicited offer is worth pursuing, you will need to assemble a team of advisors, including an investment bank, M&A legal counsel, and tax professionals, if not done so already. This team of advisors will have a vast amount of experience in advising on mergers and acquisitions, will understand the intricacies of your business and the market that it operates in, will educate you on an M&A process and the contemplated transaction, but most importantly will be an advocate for you during this thrilling and potentially life-changing event. Each advisor plays a key role in assisting you through a sale of your business.
- Investment Bank: An investment banker is the core resource that will help you evaluate, assess, and understand the offer you have been provided, related deal economics (ie. all cash vs retained equity vs earnout), all-in consideration and alternative options available. An investment bank specializes in M&A Advisory and will educate you on the valuation of your company in comparison to the offer received. The investment bank acts as a quarterback during a M&A transaction, constantly interacting with all counterparties involved and facilitating an effective and efficient process, while you focus on running your business.
- M&A Legal Counsel: M&A attorneys are different than your family or corporate attorney as M&A attorneys specialize in transactional legal guidance. M&A attorneys are keenly aware of how to process, negotiate and execute a legal purchase agreement, and are highly familiar with current market conditions that impacts post-transaction considerations.
- Tax Professionals: Tax professionals provide initial assessments on the tax implications of the considered transaction and the estimated proceeds you will receive after taxes. Tax professionals understand your current financial status and will advise on optimal transaction structure to ensure that the tax implications of the deal are acceptable.
Assess the Buyer
Alongside with your assembled M&A advisory team, it is imperative to perform due diligence on the buyer or the company that has submitted the unsolicited offer. Understanding who the buyer is, how the buyer operates, the buyer's reputation, M&A history and historical financial performance, the key stakeholders involved, and ultimately the goals and economics for the offer at-hand are vital factors in evaluating the buyer. How will the buyer uphold the legacy that you have built and continue to grow the company? What are the plans for the company under new ownership and does that align with your interest? What is your personal involvement going forward? Will the buyer retain the employees and keep your team in place? Understanding the buyer and the intentions of the transaction will help achieve high confidence that you are transitioning your business to the best new suitor or potential partner.
Pursue a Transaction
If all the boxes have been checked, you have sought out advice from your M&A team, and you are comfortable with the existing offer, pursue the transaction at-hand. However, it is rare that the offer provided is the best offer in the market and there is a strong possibility that a more favorable deal is out there. If the timing is right and you are ready to sell, an investment bank can facilitate and manage a competitive sales process to ensure that the offer is fair and compelling. A competitive process will further provide indicative market values of your company and help you maximize the value of your business. Creating a competitive environment across multiple bidders gives more negotiating power to the seller as well as lets you compare and contrast a multitude of transaction considerations across various potential buyers.
Selling a business is a significant milestone in a person's lifetime. Assembling and seeking out the advice of an experienced M&A team can help you in avoiding unfavorable potential pitfalls and assist in transitioning your business to the optimal successor.