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Mergers and Acquisitions – The Unsolicited Offer

7/10/18 – Keith Carlson

The Unsolicited Offer: What To Make Of It, And How To Handle It

On one occasion or another, most people have purchased a lottery ticket or played a game at a casino that gives themselves a chance at winning a prize or cash consideration much greater than the investment made to play the game.  Even though one generally plays the game knowing the odds are long, the fleeting moment where you ponder the potential upside and what life could be like if you actually won usually becomes prevalent.  The adrenaline rush of ‘the chance’ is undeniable and inescapable.  Adding to the adrenaline rush is the fact that one usually has some period of waiting before results are known (will I win or will I lose?). 

Entertaining unsolicited offers could and should offer a similar experience to business owners that receive the periodic unsolicited offer to buy your company.  Much like the aforementioned example, there is a period of waiting and unknown results, but the potential could be huge if you manage the process correctly, know how far to take the conversation and when to ‘call in the cavalry’ for help. 

The Unsolicited Offer: General Setup

We’ve all been there. Someone “random” calls or emails to express an idea or pose a question that has nothing to do with your day-to-day routine. If you are like many, you immediately grow annoyed and start dreading yet another sales pitch. In today’s operating climate, these generally unwanted overtures are inevitable.  However, business owners may want to reconsider how to handle at least one type of solicitation. This would be the unsolicited offer—an offer to purchase your business when you haven’t expressed an interest to sell. Some business owners receive many of these types of inquiries. The frequency depends on how favorably your industry is viewed by the investor community or perhaps how frequently you and your business are thrust into the public spotlight.

How Should You Handle Inbound And Unsolicited Offers To Purchase Your Business?

First off, it is important to respond amicably. In general, if you receive an unsolicited offer, you should appreciate the fact that someone thinks highly enough of you and your business to approach with an offer to buy what you have worked hard to build. Take the opportunity to pat yourself on the back. As such, responding to the unsolicited inquirer in a demeaning or unappreciative manner is highly discouraged. More importantly, you never know when the tables may turn; your inquirer could someday end up being someone whose interest or assistance you actually want or need. Many individuals who purchase businesses are also capital providers. Even if you aren’t selling your business, you may need their capital because you either (a) are in a difficult spot or (b) need capital to grow. You will have a much easier time asking for help from people with whom you have kept a good rapport.

Ignoring the inquiry is a lesser offense, but I still encourage some kind of response—even a minimal one. If you don’t respond, most people will keep reaching out regardless of your interest, which just compounds the annoyance. A simple response is fine. If you aren’t interested under any circumstance, inform the inquirer of your position, but acknowledge and appreciate their inquiry. If you would potentially entertain a sale for the right price but are too busy, tell them that as well —­ “I would love to chat with you sometime, but now just isn’t the right time. How about next quarter?” Lastly, even if you are in an aggressive sales mode and are looking to expedite the sale of your business, reply with caution and be somewhat guarded. Laws of attraction hold true when selling your business—people usually want objects, property, and even relationships that are more difficult to attain. Therefore, if you are hungry to sell your business, resist the urge to aggressively pursue the unsolicited inquirer—such behavior is a turnoff.

How Much Value Should You Put Into Unsolicited Offers? 

Buyers come in two types. Strategic buyers are those who work in or around your industry. Financial buyers are those who may have some experience in your industry but don’t operate in it daily. Usually, if strategic buyers call, they will know of your company and have some idea, within reason, that your business is one they want. Conversely, financial buyers have to rely on publicly available resources, which are certainly absent of rich awareness that only comes from operating within the industry.

As a result, when buyers first reach out, ascertaining their degree of seriousness can be difficult. This is especially true regarding financial buyers. Some buyers perform an incredible amount of research before they make their offers. Other buyers really don’t research much at all. I often refer to the latter as “tire kickers.” If you are in the “maybe I’d sell” or “I really want to sell” camp, feel free to test unsolicited inquirers’ knowledge to see if they are “tire kicking.” Specifically, ask them, “I’d be interested in chatting some time, but before I do, what is it that you are looking for? Why is my company a good candidate for that criteria?” The response you get in return will tell you everything. If they haven’t researched, such questions force them to do so and confirm certain characteristics about your company. If they have done a lot of research, they’ll simply tell you their brief investment theses.

How Far Should You Take The Conversation? 

In many cases, people who are reaching out to buy your company are serial buyers. Typically, they have purchased many companies and can be very efficient in evaluating you and your business—and equally efficient in terms of negotiating and persuading sellers to agree to deals that favor the buyer.  Therefore, you should proceed with some degree of caution, particularly as such conversations relate to sensitive information that could prove damaging in the hands of your competitors. Additionally, don’t lock yourself into a position regarding deal terms that are difficult to undo. In summary, date all you like, but strive to avoid talking about marriage on the first or second date. If the inquirer attempts to steer the conversation in that direction, politely steer it elsewhere.

You Actually Like The Party Making The Offer: Now What?

If you haven’t already done so, you should make quick work of assembling a team. In a perfect world, you have already begun to surround yourself with professionals who can help with a potential sale.  However, in reality, most owners neglect to take such preemptive steps, and unsolicited offers catch them off guard. In a lot of cases, this is by the inquirers’ design.

At minimum, your team should be comprised of (1) an investment banker or M&A advisor who can help you understand your potential valuation and negotiate and execute your transaction; (2) an attorney who specializes in mergers and acquisitions; (3) a wealth advisor who can “simulate” your life after a potential transaction and keep your nest egg safe after you harvest your prized asset, the business; and (4) a tax accountant who can help you structure your transaction and provide the investment banker and wealth advisor with valuable intelligence regarding tax liabilities and ideal structures associated with your deal.

Even if you don’t know any of the types of M&A specialists mentioned above, most business owners have an intelligent and trustworthy professional to consult. This could be your banker, business attorney, or even your accountant. One of these individuals should be able to point you in the right direction. After you find a suitable M&A specialist, he or she can likely introduce you to others as well.

Once your team is beginning to take shape, you will want to begin with a valuation and allow your M&A advisor and investment banker to begin dictating strategy and handling conversations with the potential buyer(s).

Key Don’ts to Remember:

  • Don’t get too deep with potential buyers who contact you regarding intriguing deals.
  • Don’t try to go it alone on broad M&A processes—they are a lot of work and involve many pitfalls, especially if you haven’t navigated numerous deals.
  • Don’t sign an LOI until you get an M&A advisor or investment banker’s advice on valuation and other LOI attributes.

Please contact us to see how VonLehman’s M&A experts can guide you and your business through a prosperous sale or acquisition.