Responding to Unsolicited Offers or Selling to an Identified Party
When you’ve identified the perfect buyer for your business, our mission is to help you achieve the highest price and negotiate the best terms while ensuring your non-financial objectives are met.
By assisting you in taking control of the negotiations, our expertise in creating an element of competitive tension when there are no apparent competitors for your business allow you to negotiate from a position of strength. No matter the circumstances, having the financial expertise and strategic advice at every step of the way maximizes your ability to negotiate the deal that is right for you.
Ultimately, our clients make all the decisions but leverage our financial expertise, deal experience and market knowledge every step of the way.
This article discusses how business owners should proceed negotiating with a single party that has expressed interest in acquiring their business. If you haven’t prepared for a sale, refer to our blog posts about preparing your business for a sale or succession planning.
It’s not uncommon for a business owner to call us after they’ve been approached by a competitor or financial investor to sell their business. The engagement generally starts in one of two ways.
- Scenario #1: the client and potential purchaser have already signed a Letter of Intent (LOI). While the LOI is generally not legally binding, it often lays out the terms of the deal which become difficult to change. Our role in this scenario is to provide strategic advice and financial expertise, and ensure the deal closes in an efficient manner in accordance with our client’s expectations.
- Scenario #2: there is no LOI and the client has had a few meetings or preliminary discussions on the transaction. In this case, we help our client take control of the sales process and negotiate with the identified party from a position of strength in order to achieve the highest price and best terms.
In the second scenario, our role is to add an element of competitive tension where there are no apparent competitors. By competitive tension, we mean that the purchaser has to believe that if they don’t put their best offer forward, they won’t get the deal. The best way to do that is to make it true.
Here are some points to consider:
- Let your advisor be the point person. All communication and correspondence should pass through your advisor. This provides much needed insulation for you and the purchaser from negotiating directly with each other. You will ultimately control the process from behind the scenes, but it allows you the flexibility to decide when and how hard to push on deal considerations.
- Prepare like you are going to market. Prepare a confidential information memorandum. Ensure that all your assertions and financial results can be supported by data. This allows both parties to negotiate with a full understanding of business performance and in a timely manner. If you are prepared, it gives the perception to a buyer that you are prepared to walk away from the deal and can consider going to market later.
- Don’t be afraid to create competitive tension. Some purchasers loudly claim they won’t be involved in an auction and will walk from the deal if they are forced to compete. This is rarely true, however the threat of going to market will incentivize a purchaser to put forward their best offer on your timeline.
- Know the marketplace. Understand what your business is worth if you were talking to other purchasers, so you can assess the strength of the offer in front of you.
- Be realistic about what a good outcome might be. Be willing and able to walk away from the deal if the purchaser won’t or can’t meet your pricing expectations. This can be harder than you think.
- Terms and conditions of the sale are equally important as the price. Consider them seriously and take the good advice of your lawyer and M&A advisor. Nothing is worse than making a deal and later finding out you’re not getting all the money or, even worse, have to give some back.
In summary, if the process looks and feels like an auction, the purchaser is more likely to treat it as if it is an auction.
