Help! A company wants to buy my business
We’re often contacted by business owners when they have just been approached by a potential acquirer. In most cases they weren’t even considering selling before the approach and have been caught a little off guard (which is understandable). They want to know how they should react and what to do next.
This blog aims to address these and other questions business owners commonly have in this situation.
Getting approached by a potential acquirer can be both validating and flattering. If you’ve built a great company, it may begin to happen on a somewhat regular basis. Understanding the process is key to not only protecting your business, but also maximising the chance of a favourable outcome.
You can’t be serious?
The first thing we try to do for business owners is to manage expectations. Just because you have been approached, doesn’t necessarily mean a deal will come together.
In fact, the numbers suggest that the likelihood of a deal is still low at this point. We put the figures at approximately 10% of approaches reaching a letter of intent (LOI) stage and only 5% reaching settlement. So, hold off buying that new car just yet!
Firstly, we need to find out whether they are serious. Here are a couple of things to look out for in an acquirer:
1. Decision makers involved in discussions
2. They have a history of acquisitions
3. You hold a strong position in the market
Why us?
Everyone thinks their business is special and unique. And why wouldn’t they! However, it is worthwhile looking at the business through the eyes of the acquirer to find out what exactly it is that they find attractive. This will have a big influence on negotiations down the track.
Some key reasons may include:
· Right place, right time – Your business is in an industry experiencing consolidation
· Diamond in the rough – There is potential to improve the value of your business
· Beachhead – You provide access to new markets or customers
· Thorn in the side – Acquiring your business will remove a competitor
· Business excellence - Do you have IP, skills or technology that a competitor needs?
Would you even consider selling?
While it can be flattering to go through the offer process to find out how much someone is willing to pay, it is also distracting and time consuming. Our advice normally is to only proceed with discussions if you are genuine about the sale process.
So would you sell if the price was right? They may also be reasons other than price to consider a sale, including fading performance (i.e. growth rate is unsustainable), market risks, execution risks or even founders fatigue causing you to consider a change.
Expert Advice
If you determine the acquirer is serious and you feel there are reasons to consider a sale, immediately seek expert advice. An experienced advisor can be a sounding board for your decisions and a trusted resource during the rest of the acquisition process. If selected carefully, they will not only help you negotiate the best price tag but also make sure you don’t get taken advantage of by an experienced acquirer. A great acquisition includes a combination of high price and fair terms.
Information Exchange
Just because you are entertaining the process, doesn’t mean you need to become a “willing seller”. In fact, it is worthwhile expressing that you weren’t considering the sale of the business before the approach and were focused purely on continuing to build a great company. This creates a genuinely strong alternative to a negotiated outcome.
A potential acquirer needs to get certain information from you in order to confirm whether they want to pursue with the acquisition and on what terms. But they will continue to ask for more information as long as you’re willing to provide it. You will want to keep the information disclosure to the minimum required for an LOI to be structured.
We suggest that you are supportive of any information request that is genuinely required to draft an offer, however you should express that your preference is for detailed information to be pipelined until due diligence.
Getting an answer either way
As mentioned, be prepared for a time-consuming and distracting process. If the deal is unlikely to go ahead, it is best to “get to no” as quickly as possible. If the deal progresses past the indicative offer stage, make sure you are prepared for due diligence as you may not get a second chance.
Check out Octavian’s Due Diligence Playbook to find out what you will need to prepare.
If you would like to find out more about growing through acquisition or selling to a strategic acquirer, contact Octavian for a confidential discussion.