If you’ve received an offer for your business, you have three options – the first being take the offer and sell your business. This is possibly something you have been considering, or it seems too good an offer to refuse; however, you should be cautious in such an event and, if you do want to pursue the offer, make sure you do the following:
Keep the Business Sale Confidential
Confidentiality is very important when it comes to the sale of your business. If it gets out that you are selling your business then this could potentially lose you staff, customers, and suppliers as they could get nervous about an impending sale and the changes that could be in store for them. Therefore, do not discuss anything until a non-disclosure agreement (NDA) has been signed, including whether you are prepared to sell the business.
Make Sure you Stay Focused on Your Business
One of the dangers of the sales process is that it is very time-consuming at the point where you really need to focus on maintaining a good business performance – if business performance dips, then this can give a buyer an excuse to lower their offer.
In fact, this is not the only situation where a buyer might decide to lower their initial offer. The buyer is under no obligation to actually pay this price for your company until you both sign the Sales and Purchase Agreement (SPA) and there are several reasons a buyer might try and chip away at the offer to try and get your business for a bargain price.
For example, when you have accepted the offer and signed the subsequent Letter of Intent (LOI), the buyer can commence the due diligence process, providing them with access to confidential information such as financial documents and contracts for a specified period of time, typically 30-60 days. There are two related problems with this. Number one is the fact that the due diligence process is time-consuming and a resource drain, which could lead you to take your eye off the business. Number two is the buyer can now look at re-negotiating now they have had a thorough look at the ins and outs of your business.
Therefore, after this huge resource drain, you now have an offer on the table that does not meet your expectations as the buyer has chipped away at the price. Either you still take this less than favourable offer, or you turn away from the deal. While it is your prerogative to do so, you have lost time and valuable resources, you have given information about your company to another party, and you have not had your full focus on the business.
So – what are the alternatives to accepting an unsolicited offer?
The second option is you can refuse the deal outright which, if it’s not something that is on the agenda for your business, might be the best option for you. Nevertheless, there is a third option, and this is to test the market. If you’ve already had an offer for your business, then this is a good option, because if one buyer is interested in your business, then it is more likely others will be too. Therefore, you can avoid the pitfalls alluded to previously by creating competitive tension.
Creating Competitive Tension
Competitive tension is when the seller has multiple potential buyers on the table, helping to drive up value. As mentioned, if you take the first offer on the table then there is the danger that the buyer will chip away at the price once they have performed due diligence on your company. Eventually, you will have to sign a LOI, thus entering into exclusivity with the buyer and allowing them to perform due diligence and, after this, they may still try and renegotiate but, if you bring multiple buyers to the table beforehand, then you can create competitive tension and drive the price up as much as possible in the first instance.
At the end of the day, a buyer, particularly one that has approached you, is likely very experienced in the art of the deal and has potentially conducted many previous acquisitions, so they will use this knowledge and an unsolicited offer to not pay the market value for your company. Therefore, if you do receive an offer from a buyer and are thinking of pursuing it, do test the market first with a good M&A adviser to assist you along the way – they can deal with the time-consuming elements of the process while you focus on your business, including generating interest to ensure competitive tension, as well as arranging for all interested parties to sign NDAs to protect the confidential nature of the transaction.
WE ARE READY WHEN YOU ARE
Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.
Europe: Carl Settle at +44 (0) 161 359 4400 / Settle@BenchmarkCorporate.com
Americas: Sam Smoot at +1 813 898 2350 / Smoot@BenchmarkCorporate.com
Africa: Anthony McCardle at +27 (0) 21 300 2055 / McCardle@BenchmarkCorporate.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximising solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.