The Unsolicited Offer to Buy Your Business
As someone who helps with exit planning, business value growth, and M&A advisory, it is no surprise I am often asked how to sell a business. I cover this topic frequently and you can read many of my articles regarding it. However, the surprise element, the one that most business owners don’t imagine or plan for, AND, possibly the most stressful one, business owners face, is the unsolicited offer. Suddenly, whether they wanted it or not, they are thrust into an acquisition scenario immediately.
Before we start, a definition of an unsolicited offer. And unsolicited offer is simply when a potential buyer for your business contacts you to express interest in your business without any action on your part. In other words, you did not solicit interest or an offer, but it found you anyway.
Quick side notes about an unsolicited offer. I often handle them on behalf of my clients and have come to find that is very high percentage of them (well over 2/3) are not from potential buyers or intermediaries working on behalf of a buyer. Instead, many of them are business brokers who are using the prospect of a sale to cold call businesses in hopes of finding a new client. They will often use phrases like “having a client who is interested” without naming a client, or that they are “backed by a large private equity group/hedge fund” without naming the group, or asking leading questions like “if an offer came, would you say…”.
As a quick example, I recently called back a group who claimed to have $300 million at their disposal to do a roll-up of businesses in my client’s industry. Not surprisingly, my client was excited! However, this $300 million group did not have a functioning website, used ‘@gmail.com’ emails, and was simply not professional to the standards I expect for “real” professionals. Could they really have the money? Maybe. But the likelihood of getting to a successful close would have been frustrating and remote.
So, what should you do if a valid unsolicited offer comes your way? There are three general principles to follow.
First: Do not commit to anything (including an NDA) at this point. As the seller, you should not be required to commit to anything this early – you are in the driver’s seat. Do not share financial information, customer lists, or even basic sales levels. Until the group on the other side of the call has been completely vetted (which will take days, if not weeks), the general rule is to only share things that are already publicly known, such as the info on your website or recent articles.
Second: Reach out to your trusted advisors and/or advisory board (if you have one) and share the details of the conversation you just had. Your advisors will want to know the basics like who the call was from, how did they find you, why did they contact you, next steps that were discussed, etc. The underlying reason for this info is to gauge the ‘realness’ of the potential buyer, and it is likely someone in your advisory group has experience vetting these types of interest. In the example above with the $300 million fund, I was quickly able to set emotion and excitement aside and see that this was - at best - all hat and no cattle.
Third: Set some time to think through the what-ifs and your emotional state as a result of the unsolicited offer. Were you excited about the prospect of selling? Did your mind go to the things you would do with more time and money? Did your stress level increase or decrease with the call? It is important to understand how you may react emotionally, because it can also tell us if now is indeed the right time to consider an organized sale. Selling a business is a very emotional and stressful time for business owners. And if your reaction to an unsolicited offer is, “Sounds great let's do it!”, then it is appropriate to start thinking about business value growth or exit planning processes ASAP.
There is one other thing that is worth mentioning here. Make sure to celebrate the success of receiving an unsolicited offer at all. Even if you never take the next step, there's validation in the time and effort you have put forth such that others have made the effort to reach out to you - just in case you may be interested. That is usually a great sign that you are on the right track.
It is certainly true that predator groups and/or ‘joker brokers’ cloud a lot of a legitimate M&A market in high growth/’hot’ industries. But with some patience and pragmatism they can easily be screened out from valid, actual buyers. If it is appropriate to move forward after the three steps noted above, you then need to put together your deal team. Start to think through who will be the quarterback of the deal team (it should never be the business owner), who are the legal, tax, and operational members of the team? Who will guide and manage the due diligence? Who will lead negotiations? All these things can be fun, exciting, and stressful at once. Which is why it is so important to make sure we handle the unsolicited offer correctly in the first place.
Ensure that the time, energy, and emotion spent on a potential deal is for a legitimate potential buyer and offer.
