Unsolicited offers come in a variety of forms. Most businesses of size and scale get approached, occasionally, by a potential buyer with enough information to put a purchase offer in front of a business owner. These are not just generic, baseless inquiries that should be ignored outright but offers with substance. These inquiries could be from private equity groups, competitors, family offices, independent searchers, customers, or suppliers. Some parties, a business owner might know well, while others might be completely unknown.
Whatever the source, when you receive an unsolicited offer, you need to decide how to proceed. The initial response and critical next steps can meaningfully impact the outcome, should you elect to pursue the matter at all. We encourage parties to move with caution and discipline. You must move at a pace and on terms that are appropriate for you. The sale of a business is a complex undertaking with hundreds of critical considerations, and choosing to pursue it ill-prepared is risky.
We propose a two-step approach for unsolicited offers:
Step 1 – If the answer to some basic questions about selling the business is not a thoughtful, wholehearted “yes,” then it probably should be a firm “no.”
Of course, many thoughtful questions roll up into the choice to say “yes” or “no” to pursuing a transaction, but before we get to some of those items, we are not proponents of saying “possibly.” Cracking the door open to an unsolicited offer or inquiry with a “possibly” is risky. The word could leak to employees, suppliers, or customers that the company is for “sale” when only minor pleasantries were shared in response to an unsolicited approach. We are advocates of a full commitment to selling a business—we don’t believe there is a “halfway” approach that works well in the long run.
Entire books have been written on the topic of how you might decide to transition a business, so we will highlight a couple of the key questions you should ask to help get the right answer regarding selling your company for you, your family, and your business. Let’s start with a few telling personal questions:
- Are you burned out? Not just tired, but truly done with the business?
- Are you ready to get out and do something different?
- Has your family suggested that maybe it is time to consider doing something different?
- Do you feel like you have taken the business as far as you can?
These are just the tip of the iceberg, but if you are leaning towards “yes” in answering some of these personal questions, there are more questions to ask yourself:
- Do you know how much you need from a transaction to sustain your lifestyle?
- Have you obtained a reasonable understanding of the market value of the business?
- Have you worked with a tax advisor to complete an after-tax proceeds analysis to understand what you will likely walk away with?
- Do you need to take any wealth, tax, or estate planning steps before looking at a transaction?
As you work through some of the personal questions, you will also want to start asking some questions related to the business:
- Is the company performing at a high level?
- Is it positioned for growth?
- Are you well-positioned to help the business thrive in the future?
- Do you have any unaddressed issues that might impact value or your ability to pursue a transaction?
After asking and answering these questions, and many others, depending on the situation, you want to make sure that the answer is clear. The response should be either a thoughtful, well-reasoned, “Yes, it’s time to sell the business” or a firm and clear “no.”
If the answer is “no,” express your position with grace and gratitude, but simply express it is not the right time. Make sure that you keep contact information on anyone who has reached out to you. Put it in a file. Time passes, life changes and you might want to call them in the future.
If the answer is “Yes, it’s time to sell the business,” then move to step 2.
Step 2 – If the answer to selling is a thoughtful, wholehearted “yes,” then do it right.
If it’s time to sell your business, it’s time to do it right and build a team of merger and acquisition (M&A) professionals around you. Many of the answers to the questions above could use the insight of a team of experienced M&A professionals, but if you decide now is the right time to look at a sale and pursue an unsolicited offer, a team approach becomes critical. A buyer who makes an unsolicited offer would love to get into an exclusive position with your company without a team of professionals advising you. It’s highly beneficial to them, and it rarely works out for you.
The buyer may try to convince you there is no need to retain a team of professionals. In fact, the buyer will often say they will use market terms in the transaction, they will give you market deal value, and they will not bog down the transaction with a lot of due diligence. A couple of these things might be partially true. However, without a team of advisors on your side and without a process to potentially back up what the buyer is saying, you have no way to ensure that is reality. You must take their word for it. Taking a buyer’s word for it could be very costly.
What you should do instead is strategically build a team of experienced M&A advisers to tilt the scale in your favor. A complete team of advisors typically consists of a deal attorney, an investment banker, a tax accountant with deep transaction experience, and, possibly, a quality of earnings provider. Some of the team-building decisions can be driven by the size of the transaction, but most transactions that are large enough to attract a serious unsolicited offer are large enough to warrant a complete team of advisors.
With these professionals in place, a key decision must be made: should you entertain other offers or go with the unsolicited offer? Your advisors will likely recommend that you pursue other potential suiters to assess if there are potential buyers capable of delivering better economic and non-economic terms.
There are a couple of key reasons why running a broader, yet confidential process, could prove beneficial to you. With a process:
- You get to drive the timeframe for a transaction. You are not at the mercy of one buyer who could drag out a transaction and use time to their advantage.
- You have a backup plan if things go wrong with the unsolicited offer. There is a secondary buyer, and you don’t face starting over if one buyer walks away.
- You have leverage. You understand where the market value is for your company. Multiple buyers compete to win the transaction rather than committing early on to one buyer who can use their “perceived” market knowledge and leverage against you without much recourse.
Running a confidential marketing process that brings multiple quality buyers to the transaction is a key success strategy in M&A. Without a process, the buyer is in the driver’s seat—they set the pace, you don’t have alternative options and views, and the leverage could be dangerously misplaced.
We have been engaged in numerous transactions where the initial offer, which looked good on the front end, stacked up poorly in a well-planned and thoughtful outreach to a broader universe of buyers. We have seen transaction values increase by more than 50%, often with buyers who are a better overall fit for the seller. The first unsolicited offer is rarely the best offer.
If a buyer approaches you with an unsolicited offer stating they are the best buyer for your company, first decide if you are ready to sell. Then, let them prove they are the best buyer in the crucible of a competitive process. You don’t have to take their word for it and risk everything you have built. Make them show their strength and win the transaction outright.
We recommend that you plan for a full or partial liquidity event years in advance, if possible. We understand that life doesn’t always go as planned, and monetization consideration can evolve more suddenly than expected, possibly when you are not optimally prepared. If you have received an unsolicited offer and are deciding what to do next, call your Forvis Mazars Capital Advisor. We can help you consider your options and make an informed decision for you, your family, and your company.