What to Do With an Unsolicited Offer to Buy Your Company

By Generational Equity

12/09/2019

It most likely will happen to you one day: Your cell phone rings, you answer and you have the most thrilling conversation you have had in years – the person on the other end of the line wants to buy your company!

Once the thrill of being courted wanes, you realize you have no idea what to do next!

We are hearing from business owners we meet with that they are getting more of these calls than ever before, especially from private equity firms that have record amounts of capital on hand that they need to invest.

Quite frankly, if you haven’t hired a professional M&A firm before the call comes, you are going to be at the mercy of the buyer, since it’s most likely that this will not be the first time they have approached sellers in this manner. 

So without having professional guidance, you will have a number of questions to answer:

• Do I even want to sell?
• What is the fair market value for my company?
• What are comparable companies selling for right now?
• If there is one interested suitor, might there be others? If so, how do I quickly find them?
• Who will handle the legal aspects of my transaction?
• What would be the optimal structure for the transaction (cash, stock, notes, earn-out)?
• How can I realistically manage the sale of my company AND run it day-to-day (it is estimated you will need 1,000 hours of your time to close most transactions)
• What happens if this offer falls apart?

This is just a short list of issues that will hit you about 10 minutes after the call ends. And about 10 minutes after that, you will break out into a cold sweat as you realize that, even though it would be possible to close a deal with this buyer, three fundamental issues need to be addressed.

What Will Keep You Up at Night!

First, if you have no idea what your company is worth (and most owners do not), how can you decide if this offer is fair? There is an old saying in the M&A game: One offer is no offer. This is especially true of unsolicited offers when you have no idea how to even judge the validity of the offering price.

Secondly, unless you have a really well-trained middle management team – a group that can literally run the business in your absence – you realize that 1,000 hours away from the business would most likely cause it to miss projected revenue and EBITDA numbers. If that occurs, it will impact any buyer that approaches you with an offer. It is vital that during the 3- or 4-month due diligence phase, you are hitting (or exceeding) projections.

Finally, assuming you move forward, and assuming you have a great middle-management team in place, how are you going to maintain confidentiality? Certainly, you will need to let your key employees know what is going on. Your CFO and accounting department will absolutely have to know because they will play a key role during due diligence. There may be others such as your VP of HR who will have to work with a buyer before the deal closes to craft a benefits transition plan.

And what happens if the deal falls apart? You have now opened yourself up to a raft of issues like low employee morale, customers who have heard rumors about you selling, and suppliers becoming concerned about the relationship.

For all of these reasons (and even more), you need to hire an M&A advisory firm BEFORE that call comes. Although they can’t prevent these same issues from arising, they can guide you and ensure that before you sign on the dotted line that your financial and personal interests are protected.

The Generational Group of companies has successfully transferred over $5 billion in wealth to its clients over the years. Our process works because our deal teams have significant experience in dealing with professional buyers, the kind of deep-pocketed suitors that you want to negotiate with. 

If you want to learn more about how our services could benefit you and your family, please call us at 972-232-1121, or leave us your contact information and we will be in touch.

And please, if you do get that call soon, take some time to ponder the list of questions above. Don’t rashly walk down a path that is difficult to unwind if things don’t go well!

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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