Unsolicited Offer – What to Do Now

It is not unusual for a business owner to receive an unsolicited offer for their business – as a matter of fact, it happens quite frequently. But what should the owner do next?

“You probably have said something like, ‘for the right price, I might consider selling’,” says Achim Neumann, President of A Neumann & Associates, a New Jersey based mergers & acquisitions and business brokerage firm. “But in reality, you are most likely not ready to move forward.”

Various questions should be considered:

• What is my business worth or what are similar businesses selling for?
• Is there more than one interested buyer?
• How is confidentiality preserved?
• How does one negotiate the best deal?
• What will I do after a sale?

Quite frequently, business owners will be initiating the process on their own. Certainly, one can take the Do-It-Yourself approach. However, the reality is that the transfer of a business is a specialized business in and of itself, and without a deep understanding of all the nuances in transferring a business, an owner can end up with a lot of risk, and little to show for it in the end.

Most importantly, selling a business is a very involved undertaking and is considerably distracting from running a business. A business owner’s priority needs to be ensuring that growth and profitability are maintained during the transfer process. For 80% of privately held businesses, the ownership of the business constitutes the majority portion of the owner’s net worth, and this is not the time to jeopardize what was created over many years – in a first-time effort to sell a business by oneself. It’s quite unlikely that a business owner would venture into a new market or process without detailed research as to which qualified experts can be hired. Nor should a business sale be treated as such.

Worse yet, often the buyer or investor/acquirer is pushing for a fast deal (“I need a decision by next week”) and has gone through many acquisitions before. Perhaps, they are professional experts in deal making, referring to matters in different terms and strategies.

Thus, the smart business owner assembles a team of experienced advisors to assist throughout the process. As we have so often stated in our seminars, such a team primarily consists of an M&A advisor, a transaction lawyer and a CPA, addressing various questions and concerns.

1. Is the offer truly a full price offer?

Firstly, an accredited, third party business valuation by a reputable, national valuation firm should be put into place – not by an in-house operation of the advisor. The M&A Advisor should be able to facilitate external valuation, addressing the particular advantages and disadvantages of the business. Even if the initial offer were to appear as reasonable, your M&A Advisor should be able to increase such offer simply by way of presenting a comprehensive marketing package to the buyer, including all add-backs within the valuation.

2. Offer Negotiation

Professional investors are generally well-experienced negotiators. How can the business owner ensure not to leave money on the table? In this situation, the M&A Advisor can be most useful as an intermediary, being the “bad cop” to shield the seller from difficult negotiation points, however, in the interim, preserving the principal-to-principal relationship between both parties. This is very important, if the seller/owner plans on continued involvement.

3. Running the Business at Top Performance

Selling a business is time consuming even with a good deal team in place – without it, it will be all consuming and most likely disastrous. A business owner has to focus on running the business at peak performance during the transfer process because an under-performing business during the due diligence period will most likely not result in a closed deal.

Within this context, an owner’s M&A team will advise what information to share and which information to hold back. Specifically, questions like which information to release to underline the business’ strengths, or at what point to release sensitive competitive information about customers, vendors and employees are questions to be addressed by experienced professionals. The right approach to these questions will have positive implications into how a buyer values a business.

There’s no question, the business transfer process — from negotiating an offer, to due diligence completion to closing — brings a lot of ups and downs. Experienced professional advisors act as a sounding board and provide the much-needed coaching along the way.

The best strategy for any business owner is to always be prepared for that investor phone call – understanding the value of a business in today’s market. For that matter, many business owners have our firm prepare strategic business valuations every one to two years – simply to be armed and ready.

After years of investing into the business in terms of work and capital, to be properly prepared should be a no brainer for any savvy business owner.

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This blog contains excerpts out of the recently published book

The Road Beyond – What Nobody Tells You About Selling a Midsized Business?