What To Do if Someone Wants to Buy Your Company

Imagine you get a call from one of your competitors or their representative.  As you speak with them, they are sizing you up and finding out how well your business is running and how motivated you are to continue running your business.  They want to set up a meeting with you to discuss the possibility of a merger or acquisition.  What do you do?

First of all, set the meeting far enough in advance to do some research, but not too far out to lose momentum on a potential deal.  Give yourself enough time to gather enough information to be confident about valuations in your industry and businesses in a similar size range as your business.  Also, give yourself enough time to think about how motivated you and your family are to exit, but don’t discuss this with anyone else at your company.  When dealing with an experienced buyer that has bought many companies, it is important that you understand your company’s value.  The buyer will gauge your actions and words carefully, and it is important to stay alert but not scare off the buyer by being too defensive.  Since they are already interested in your company, you should be confident about your position but listen very carefully to what they are suggesting. 

While it is not very common for companies under the $50 million valuation mark to receive unsolicited offers, it does happen.  When it happens, most buyers offer a low price because they think the business owner might accept and has not researched other options or sought other buyers.  For instance, they may offer you $20 million when your company is really worth $40 million to them, and if you don’t know how best to value your company, $20 million may seem like a fair value to you.  In fact, it has been shown that the first offer given in an unsolicited offer is, on the average, 50% of the value of the company. Keep in mind, valuations are very subjective and can range immensely between any two valuation experts.  However, knowing the criteria of those valuations and your own company’s situation will really help you become comfortable and suave in your negotiations and conversations.  Valuations can be a little confusing and the value can depend on what the buyer is interested in: cashflow, IP, talent, product offering, etc.  Feel free to contact us if you need help understanding valuations.

If you do have interest from a company, you may choose to go ahead with that buyer, or you may retain the services of an M&A intermediary, M&A advisor, or boutique investment bank (generally synonymous terms) to help you leverage the existing buyer’s interest in order to find other buyers willing to pay more than the offer you may receive from the interested party.  If you are a scalable business with revenues over $3 million, resist the temptation to use a business broker.  More likely than not, they won’t be able to give your company the exposure it needs to obtain a quality buyer.  A professional M&A firm will obtain the optimal price for your business by procuring several buyers in various geographic areas, similar industries, and even various types of buyers.  As with most competitive bidding situations, having one interested party is about as good as having no interested parties. 
Whether you decide to proceed with the interested buyer or use an M&A firm, it is important to ensure you are being represented by competent, experienced, and cost-sensitive attorneys and accountants.  They are crucial in completing due diligence, reducing tax liability, helping you understand what is “market,” and negotiating the letter of intent and purchase agreement.  It is important to note that while these professionals are there to protect you, their protection may also cost you the deal.  An experienced M&A team will generally help to finalize the deal because of their experience in seeing deals through and putting the pieces back together when issues arise  in due diligence. In an interview with various private equity groups and corporate buyers, it was found that most buyers increase their offers for companies on the average by 10% when the target seller is being represented by an M&A firm. In addition, M&A firms will generally shop around an offer and increase deal strength which increases prices by another 25% on the average.  

Orion Capital Group, Inc. (www.orioncg.com) is an M&A advisory firm that specializes in advising clients and finding buyers for companies valued between $3 and $50 million and we are constantly in touch with buyers looking for investments in various industries.  Numerous times we have come across companies that were acquired without having gone through a competitive bidding process because it was convenient for the shareholders or because they were unaware they had other options.  Ultimately, many were taken advantage of by the buyer due to low valuations or below-market terms.  If a company offers to acquire you, call us and we can inform you of your options and guide you in your decision making process at no cost.  Even if you are just looking to find names of good accountants or attorneys, we know many professionals who can assist with other aspects of the deal process.