The buy direct strategy of many and varied buyers puts an owner in an uncomfortable position, especially when you have not planned for a transaction.
Before you consider this type of offer, owners need to assess their positioning for a sale transaction, understand the company’s value to a buyer and research recent sales of similar companies. Now let’s look at some questions you may have:
Q: How should I handle an unsolicited offer for my company?
A: Some cash-rich and acquisition-hungry buyers are taking a direct route these days by cold-calling businesses that match their criteria. Should you find yourself on the other end of such a call, you should consider a couple of things before agreeing to proceed in what could become an M&A deal.
For starters, decide whether you’re ready to sell. If a sale hasn’t been in your immediate plans, you are very likely not prepared for it.
Also consider the source of the “buy”, is it a reputable investment banker or business broker, or is this just a fishing expedition designed to test the waters for a potential candidate for services.
Q: Why was the offer to buy unsolicited?
A: Unsolicited doesn’t necessarily mean impromptu. A prospective buyer may have had its eye on your company for years!
If you receive an offer to buy “out of the blue,” the buyer may simply be taking advantage of favorable marketplace conditions to acquire what it believes will provide synergistic opportunities.
On the other hand, you could receive an offer from a financial buyer seeking a bargain. If a potential buyer considers your company undervalued, it’s important to know this to ensure you don’t get the short end of the stick.
In other words, understand your value and value proposition!
Q: Is the interest real or are they testing the waters?
A: Unsolicited offers can be useful — even if you decide not to take them. For example, an offer enables you to test the waters for other potential buyers. While the initial offer is on the table, your M&A advisor could search for other possible buyers and even solicit competing deal offers. That way, even if you end up accepting the original buyer’s offer, you’ll know you received a fair price for your business.
Because you hadn’t intended to sell, it’s easy to turn down an unsolicited offer that seems low. Internet photo app company Instagram reportedly turned down an unsolicited $525 million offer from Twitter, and then received a $1 billion counteroffer from Facebook. Your company probably isn’t dealing with such large numbers, but the lesson is clear. Wait and a better offer may come along.
Q: If I am interested in transition what should I do?
A: Even if you decline an unsolicited offer, the experience may spur you to consider selling soon or at a future point in time.
Consider obtaining a professional valuation that provides you input on the potential buyers for your business and what you are selling. A valuation need not be a long and protracted report, rather it should be a document or presentation that allows you to understand an assessment of current value, provide an understanding of what Value Drivers are important to potential buyers and how to create sustainable value for a possible transaction.