Each year, thousands of companies across North America get approached by a company or individual interested in acquiring them. These can include everything from strategic corporate buyers to financial buyers (private equity firms, search funds, consolidators, etc.) and individual investors.
If someone approached you with an interest in buying your company, would you know what to do? Your company may not be for sale, but you’ve probably said a dozen times, “of course for the right price we’d give it serious consideration”.
After you get past the initial good feelings that someone appreciates your work in building a recognized position in your market, it’s time for a reality check. What are the chances that the first company to come along and make you an offer will be your best buyer, or will present you with the best offer? Or even their best offer?
Maybe the timing is right. It seems like a good fit. Perhaps the idea of selling-up into a larger firm that can accelerate your growth is appealing as you’ve been struggling to achieve growth while being substantially undercapitalized. Maybe you are thinking this is an opportunity to reduce your risk, take some money off the table and give yourself an exit option. You begin to think perhaps this is your real buyer.
What’s your company worth? What is the right price? What are companies similar to yours selling for these days? What elements of your company will be additive or will detract from your value? Who else might find you of interest? How can you negotiate a better deal with no competitive bids? Is there a way you can get competitive bids without losing the initial offer? Is your best option to say no but to leave the door open, or are you burning a bridge?
If you decide to carry conversations further with this interested buyer, experience shows you shouldn’t try and manage the process on your own. It’s a massive undertaking, takes a tremendous amount of time away from growing your company, can be mentally and emotionally exhausting, and is fraught with the possibility of mistakes that can be devastating to the deal. Without realizing it, you may leave money on the table, or put yourself at risk post-transaction to not collect everything you thought you’d be getting.
Following are just a few of the things to consider in this unique situation:
The process from deciding to sell, to accepting an offer, to getting through due diligence, and finally to closing the transaction, is full of ups and downs. You will want someone experienced in the process to act as a sounding board and to provide you with coaching and recommendations through the process. Buyers make strategic decisions to acquire companies based on a series of good impressions. If your story is inconsistent in the months of discussion, you take too long to answer simple questions, or your information has to be restated for any reason, you may see their interest go away; you WILL see their valuation decrease.
Whether you are contemplating selling your company now or at some time in the future, you should always be ready for that phone call and know immediately how best to respond. Know what your company is worth in today’s market. Understand what enhances or detracts from your value to various profiles of buyers. Work with an advisor who can help you with the process to qualify and validate the buyer. Serious buyers like a company to have professional representation, while bottom feeders hope that they can convince the seller that they know the market. Whenever possible, consider getting competitive bids as it improves value, results in cleaner transactions, and provides you with the opportunity to consider buyers who might have a better chemistry post-transaction with the team you’ve invested years in building.
If you are approached and do wonder if it might be a good opportunity, call us. We guarantee that the value we bring to your transaction will be far greater than the investment you make in our expertise.
If you would like to discuss your unique situation with us, please schedule a confidential call.