One of the most common catalysts for a business exit is an unsolicited approach from a potential buyer.
It’s left field issue #3 of our four “out of left field” issues that can derail your ultimate business exit.
In most cases, business owners aren’t ready for an unsolicited offer from a potential buyer. As a result, they often quickly end up in a business sale process being driven completely by the buyer and their advisers.
Over the years, I’ve had plenty of business owners turn up in my office to “have a chat about potentially selling their business” and, some way into the meeting, sheepishly pull out a signed term sheet. Invariably, they’ve had no advice on the term sheet (which is heavily weighted in the buyer’s favor) and have given the buyer an exclusive right to negotiate with them for months to ﬁnalize a deal.
It’s a compliment
If you have a good business, it’s quite likely you will be approached at some point by a potential buyer.
If a good-quality buyer approaches you it’s usually a good sign. Acquisitive buyers have teams of highly skilled people whose sole role is to ﬁnd and assess buying opportunities. These teams look at many businesses before choosing one or more to approach.
So, in most cases, you can assume they’ve already made at least an initial assessment that your business is a good ﬁt for theirs, and have formed a positive view of your business relative to other opportunities in the marketplace.
An unsolicited offer can also be a sign you are approaching the best time to sell your business. Whether that’s actually the case, of course, always needs to be carefully considered.
More importantly, it means at least one potential buyer has recognized you have built real commercial value in your business which they are prepared to consider buying.
So, accept the compliment; but then consider very carefully how you will respond to the potential buyer’s approach.
Dealing with unsolicited offers
How you react when you’re approached by a potential buyer is critical.
Ideally, you will have anticipated being approached at some stage, and will be able to articulate well the positive features of your business. It’s also important to show you understand the business sale process and will work constructively with the potential buyer, whether or not a deal actually proceeds.
Don’t be pushed into telling the potential buyer what you want for your business, it will just put a cap on the eventual sale price. He who speaks first always loses here! Instead, tell the potential buyer you’re not currently looking to sell; but if they, or someone else, did make you a firm offer you would look at it.
Be aware that, while you obviously don’t have to sell your business if approached, you will often be put under a lot of pressure to do so.
Assess the offer
Here are the key questions to consider if you’re approached by a potential buyer:
- Is the approach real or is it being made for other reasons (such as a competitor trying to obtain valuable information about your business)?
- Is it the right time to sell your business?
- Are there other potential buyers for your business?
- Is the offer made by the potential buyer the best you can get? It usually isn’t.
- Why does the buyer want to buy your business?
The last question is incredibly powerful. And because they’ve approached you, it’s entirely reasonable for you to ask the question.
Don’t expect a real answer the ﬁrst time you ask, of course. You may need to ask several times and in different ways before you feel you really understand why they want to buy your business and where they see the real value in your business.
Getting an understanding of why a potential buyer wants to buy your business can help you shape your exit in a way that maximizes value for the buyer, and in turn maximizes your ultimate sale price.
Keep it competitive
Importantly, resist the temptation to only deal with the potential buyer who has approached you. It’s critical you bring other potential buyers into the process, for the reasons covered in our previous you need an auction post. If your potential buyer resists this strongly, it means they are trying to pick up your business for a bargain basement price.
Being prepared will help you ensure an unsolicited offer from a potential buyer doesn’t catch you off guard.
In our next post we will look at how to deal with the fourth of our left field issues that can derail your business exit: the emotional rollercoaster.