Most business owners will at some point receive an unsolicited approach from a potential acquirer. But how should you respond to such an approach and should you open up the discussions to other parties as well?
It is important to be prepared for such an event, even if the prospect of selling your business may be something you have never considered.
If you feel that the buyer is serious, there is often little harm in having an exploratory meeting. In a first meeting, the onus should be on the buyer to explain their strategy, what attracted them to your business, how they expect your business to fit within their group and their approach to valuation. It is important that the onus is on the buyer to justify a strategic logic and how that would translate into a strategic valuation that is after all what most shareholders are looking for.
The buyer will undoubtedly also want to hear more about your business, but it is important not to disclose too much information at this early stage. The “less is more” maxim is key in initial conversation as it allows you a far greater strategic and tactical flexibility at a later stage of the discussion.
The "less is more" maxim is key in initial conversation as it allows you a far greater strategic and tactical flexibility at a later stage of the discussion.
Shawn Bone, Cavu CFQuite often the initial approach may also trigger wider consideration of the future of the business in general and a potential sale process specifically should you give consideration to other potential acquirers do they provide leverage or is there a premium to remaining exclusive with your initial suitor?
The textbook answer is that you should always run a competitive sale process to ensure the market determines the optimum value. However, there are merits of talking to only one purchaser in certain situations it is important to establish whether they are a strategic buyer prepared to pay extra for a non-competitive process, and in certain situations shareholders may feel that an “off-market deal” will also minimise the risk of commercial leakage.
The nature of your business and your sector will also be a key consideration. There may be other potential buyers where there is a particularly strong synergy case, or your sector may be going through a period of heavy consolidation activity, in which case you would likely benefit from inviting other consolidators to the table.
If you have received an approach and you are unsure how to best progress it, Cavu Corporate Finance have many years experience dealing with unsolicited approaches and optimising value for shareholders.
