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Mergers & Acquisitions – When the Buyers are calling, what should I do?

03/18/2022 Bryan Setz, Ely Friedman

Since the Great Recession, the economy has been on a steady incline. Coupling the economic growth with the Baby Boomer generation reaching retirement age, historically low interest rates, and the current delay of unfavorable tax law changes for sellers, it is no surprise that the mergers and acquisitions environment remains red hot.

As a business owner, one may be approached time and time again with inquiries from interested buyers. If you are an owner contemplating, or in the position to sell, your business, there seems to never have been a better time than now. Additionally, for most owners, this will be a one-time experience. As such, it can be tricky to navigate the inner workings and negotiations of achieving the best value from a prospective buyer. In this article, we walk through the general do’s and don’ts associated with your first interactions with a potential buyer.

The Buyer’s Approach

Early in the process, approaches typically begin with a phone call, lunch, or simple introduction from an interested party. Once the two parties have connected, a decision is made about whether to move the process forward. Depending on the size and sophistication of the potential buyer, those next steps in the process may vary. At the core value of this “courtship” phase, sellers should be transparent with their level of interest while maintaining the confidentiality of their operations. Here is a list of scenarios and recommendations from VonLehman’s Mergers and Acquisitions/Business Valuation Experts.

Situation: Over lunch, the buyer is verbally describing the purchase multiples their company offers its targets.

Response: Listen, document the conversation, limit your response and don’t over analyze. A good response could be to not directly engage in the multiples part of the conversation but simply congratulate them on closing their deals. While the buyer may be comfortable providing multiples of past deals, every deal is different. The multiple they would pay for your company is likely different from others. Additionally, these conversations leave out the important facts around what adjustments were made to a target before those multiples were applied.

Situation: After a few productive meetings and conversations, the buyer sent a request list for my financial information and other questionnaires.

Response: Respond by saying you will gather the information, but do not jump the gun on sending it. Have an M&A professional review your financials to identify other potential adjustments. Common adjustments / add-backs include but are not limited to discretionary, non-operating, and / or non-recurring expenses—which are common in private company financial statements. By addressing these items on your terms, you prevent negotiations breaking down as a result of misunderstanding the information provided.

Situation: The buyer has asked me to sign a nondisclosure agreement (NDA) and sent me other legal documents to sign.

Response: Respond to the buyer by saying something along the lines of, “Looking forward to reviewing this further with my counsel and continuing the dialog.”

Situation: I haven’t heard anything from the buyer in weeks, and another potential buyer has approached. Can I talk with them?

Response: So long as you haven’t signed a letter of intent (“LOI”) or another document that explicitly states you are not permitted to speak with other prospective buyers, you should be able to speak freely.

Situation: You have already provided your financials, is it too late to engage M&A support?

Response: No, one of the benefits of using an M&A advisor is to allow them to play the role of deal negotiator, including making any corrections / adjustments whenever possible.

When buyers are calling, be mindful that even in the event you don’t want to sell to them today, you may in the future. Be polite and decline with honesty. Stating how you are enjoying the growth of the company and autonomy it provides you is a nice way of saying “I’m not for sale”. Albeit a potentially emotional process, planning and organizing your thoughts as opposed to being reactionary is always the preferred method of interacting with interested parties.

For more information or guidance, please contact our team of Mergers and Acquisitions experts at efriedman@vlcpa.com or 800.887.0437.

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