When an acquisition offer turns up out of the blue, knowing what to do is a huge call – and business owners need to get organised fast. Read our quick guide to understand the opportunities and pitfalls of discussing your business exit with others.
An unexpected acquisition offer prompts a mix of emotional responses from business owners from surprise and flattery to suspicion or irritation.
With M&A activity at a record high, unsolicited approaches are increasingly common in business sales at SME level – indeed almost inevitable in some industries. What are they all about and how should you handle them?
An unsolicited approach is an offer to purchase your business when you haven’t expressed an interest to sell, usually in either an email or cold call from an advisor representing an investor or mystery acquirer.
Beware that some investors and advisors may just be fishing to assess your appetite with no serious offer intended. This is a big part of why 60% of our clients who appoint us with an offer on the table end up selling to someone else.
Our tips below will help you assess this and other questions.
Step 1: Play for time
Even if you are desperate to know who wants to buy your business and what they’re offering, you must calmly take control of the conversation while taking care not to burn your bridges – even though the timing is wrong for you. Don’t feel flattered into progressing this if you are not serious.
Let them know that the business is not currently for sale, but that you are open to further discussion in a month or two. Suggest a date in the diary – you can always delay further.
A few weeks’ delay protects you from entering unguarded discussions about sensitive issues like financials, new products, and key customer accounts.
Acquisition advisors will want to manoeuvre you to sign an exclusivity agreement, shutting you off from speaking to others for months.
Step 2: Discuss with other shareholders
An out-of-the-blue approach offers SME owners a rare opportunity to address exit aspirations. While some shareholders want to stay and pursue organic growth, others are ready for a change and open to acquisition. Turning offers down when some want to leave may foment unhealthy shareholder disagreements, while it may be possible to accommodate all exit options in a transaction. All this starts with a shareholders’ meeting to discuss the offer and crystalise any exit plans.
Sole shareholders often confide in a significant other. This is safer than discussing with a non-shareholding director, who may be jittery about job security or status which will influence their opinion.
Step 3: Find M&A experts
Even if you aren’t ready for exit and want to reject an offer, it’s worth using the opportunity to sound out professional advice from the M&A world.
Most corporate finance advisors will undertake pro bono work – without big retainers – to help you assess the company valuation and terms on offer. They can also help you understand who else is acquiring in your sector. High street accountants will usually help you process the transaction, but often without assessing readiness, generating competing offers, or maximising value. Choose three advisory firms and let them pitch.
A good corporate lawyer is also worth sounding out to grasp the level of documentation detail required, as well as intellectual property rights, transferring contracts, and due diligence process.
Any serious acquirer will not be offended by you hiring an ‘exit’ team. It indicates that you are serious about discussing their offer. They will have expert advisors on their side, and you will have someone to respond to queries while you get on with running the business.
Step 4: Consider your options
With an offer of acquisition on the table and impartial expert advice, it’s time to align the various opinions into a collective response. Most serial acquirers will also be talking to your competitors, and nearly all start negotiations with a low-ball offer.
You should be in a position to accurately gauge:
- Preferred exit timescales and value expectations of all shareholders
- Whether the offer reflects the value in the business – current and future
- How long the process takes and commitment involved in selling up
- What will happen to your workforce under new ownership
- What moving on means for family and those close to you
Step 5: Formally respond to the offer
It is now time to progress or reject the offer. Progressing still doesn’t mean entering an exclusivity agreement with the first acquirer.
You are now in a position to qualify the initial offer. Is it genuine or a fishing exercise? Are they pushing hard or have they gone quiet and moved on? You may choose to keep this on the table but let them know you will be talking to other acquirers.
You may prefer a part-sale where some or most shares are sold – perhaps via a management buyout. Perhaps the valuation discussions have highlighted that you are too small and need to grow – even becoming an acquirer yourselves.
Whatever you decide, it’s worth thinking through what it would mean if this acquirer bought one of your competitors. Learning what acquirers are interested in – key accounts, your most valuable staff, your intellectual property – will also help you form a defensive strategy to succeed if your industry is consolidating into larger groups or new entrants are moving in.
- Don’t rush into an exclusive talks with the first person who comes along
- Shareholder alignment risks internal or family disagreements, seek consensus
- Get the best advice – this is about much more than valuation and terms. A good advisor can have you talking to other interested parties within a few weeks
- Be prepared for exit so you can respond quickly to a future approach by someone else
- Learn what’s involved in selling by speaking to others who’ve been through it
- Your future is important – know what you want to do next before the moment arrives
We help shareholders grow, buy and sell businesses every day. Contact us for an informal chat to discuss your options.