An Unsolicited Offer – What NOT to Do

It takes planning to successfully sell a business, and one of the most “unplanned” events is an unsolicited offer.

“As a matter of fact, we often experience business owners requiring our services due to an unexpected offer,” says Achim Neumann, President, A Neumann & Associates, LLC, a New Jersey based M&A and business brokerage firm. “The most immediate question for the business owner is, ‘what do I do next?’” But as is the case in an orderly planned transfer, there are also some “basic rules” in dealing with unsolicited offers.

Firstly, there is no reason to rush, regardless of what the investor expresses. “The offer is only good until Friday” or “The buyer is looking at other businesses” are indeed simply pressure tactics to entice the business owner into a hasty, not-well-thought-out decision.  Businesses are usually not sold overnight, and the mere presence of pressure should alert an owner: Slow things down!

Secondly, without a proper business valuation in place, an owner simply cannot move forward. This is an indisputable fact, and a delay for a business valuation will certainly be accepted by any honest investor. It is truly not possible to negotiate a transaction value, deal structure, and owner transition compensation package without a credible business valuation. Therefore, the first order of business needs to be to put an objective, third party, accredited business valuation into place.

“For every hundred buyer inquiries, only two thirds of the buyers qualify,” says Frank Arcoleo, Managing Director Central Pennsylvania and Central New York, “thus, it is very important to make sure that the interested party indeed has the funds to buy, and experience to run, a business.”  Suggesting such a qualification process typically puts the business owner in an awkward spot, but a qualified M&A advisor is in a considerably better position to request such buyer information prior to revealing any confidential information about the business.

Another important part of the pre-qualification process is to execute a non-disclosure agreement. The mere knowledge that a business owner is open to negotiate a sale would cause significant problems for the business if leaked into the marketplace.

An old mantra in the M&A business is the expression “One buyer is NO buyer”: basically, the first buyer is most likely not the one who will ultimately purchase the business.  Thus, once a business valuation has been put into place, there is an opportunity to contact other buyers, again preferably by way of an M&A advisor to maintain confidentiality. Thus, the initial LOI – most likely containing a “no-shop” provision – should under no circumstance be immediately accepted and signed.

In sum, a reasonable, seasoned business investor fully understands the due diligence a business seller needs to go through before accepting an offer, especially if the primary business owner also has a responsibility towards other shareholders. As a result, no seller will agree to sign “on the spot,” and it’s only the unsophisticated buyer, attempting to rush a business owner into a deal, who tries to pressure a seller into an immediate acceptance.