Someone Just Offered To Buy Your Company: Now What?

Congratulations! Your hard work, personal sacrifices, and innovative ideas have paid off, attracting the attention of a potential buyer who is eager to invest in your company's success. An unsolicited offer to buy your company can be both thrilling and overwhelming, triggering a variety of emotions and decisions that will shape the future of your business venture.

But, as you consider your options and your future, it's essential to remember one thing before all else - slow down. Don't allow the initial excitement or implied pressure of the potential acquirer to drive hasty actions that may not align with your long-term vision. In this article, we will dive into our M&A playbook to offer our best advice for any business owner that has received unexpected acquisition interest.

Buyers Are Full-Time Predators and You're Part-Time Prey

In the world of mergers and acquisitions, a stark reality often emerges - when it comes to unsolicited offers, buyers are prepared, while sellers often are not.

Experienced buyers are full-time predator: armed with a wealth of experience, resources, and a strategic playbook, seasoned buyers thrive on identifying opportunities where the seller lacks the expertise or understanding of his or her company's true value.

Inexperienced Sellers are part-time prey: it is not uncommon for founders to be unprepared for the complexity of an M&A transaction when receiving an inbound offer. While the seller's passion and dedication to his or her business has been the driving force behind its success, this is precisely what an experienced buyer seeks – a business owner who may not possess the insights required to effectively assess the value of his or her company's value.

As overwhelming as this may sound, there is some good news: Arming yourself with education, expert M&A guidance, and a patient approach to selling your business can level the playing field, ensuring that you can confidently navigate the M&A waters and secure the best possible outcome for your company and your future.

Step 1: Are You Ready To Sell Your Business?

Prior to the exchange of any confidential information or documentation (NDA, financial statements, term sheet, or Indication of Interest) or beginning a formal due diligence process, an important question should be addressed first - are you ready to sell your company? It's a big decision, as selling your company means relinquishing control and embracing a new chapter, one that might hold exciting opportunities or unforeseen challenges.

Take a moment to reflect on your journey, your aspirations, and the legacy you wish to leave behind. Consider the impact on your team, your customers, your investors, and the industry you've shaped. Are you prepared to part ways with your brainchild, or do you envision continued growth under your leadership? What are your personal plans for the future, how will you spend your time away from your business, and do you know how much money do you need to accomplish your next set of goals?

Former Cashing Out guest, Ryan Vaughn, is an experienced founder, entrepreneur, executive coach and owner of Inside Out Leadership. Ryan helps many of his business owner clients to mentally prepare for the sale of their companies well in advance of the actual exit. In his own words, signing the paperwork to exit his own business felt like a gut punch, despite the preparation that went into the transition.

As the owner of your business, the decision is yours - take the time you need to consider all aspects of the exit, and don't be afraid to connect with peers or advisors who can help you think through the details of your exit journey.

Step 2: Consult With an M&A Expert

If you've come to terms with the sale of your business (especially if you've received an inbound offer), it is important to consult with an M&A advisor to help you level the playing field with your potential acquirer. An M&A advisor can help you evaluate the offer, coach you on industry-specific deal points, create accurate valuation targets, negotiate the terms of the deal, and help you to manage through the due diligence process.

However, not all potential acquirers will react positively to your request to slow down and build up your team. In a recent episode of the Cashing Out podcast, Craig Dickens, an M&A advisor and serial entrepreneur, shares three potential reactions that a preemptive bidder may have when you say, "Hey, I'd like to hit the pause button to bring in additional M&A advice to support me through this process."

  1. "Sorry, we're out" - This reaction tells you something about the quality and legitimacy of the buyer. It tells you that they were trying to steal your company. If a buyer is not willing to wait for you to bring in an M&A advisor, to properly present the company for sale, then that buyer was not a serious buyer you should work with. In this case, you need to be prepared to walk away from the deal if the acquirer is not willing to work with you.

  2. "Excellent news, now I know you're a serious seller" - If the buyer is happy to oblige, then you know that they are a serious buyer who is willing to work with you. This is the best-case scenario. The acquirer understands the importance of having an M&A advisor involved and is willing to work with you to provide the time to create an optimal deal structure.

  3. "We don't want you to go to market, so we'd like to increase our offer because you're strategically worth that much to us" - This is a great outcome if you are happy with the increased offer. However, the purchase price is only one part of an offer. It is important to be aware that the buyer may still be trying to pressure you into accepting the offer where they will control the terms of the transaction, which could cause you to not be paid in full. Finding an M&A Advisor to support you and your business through the sale process is still the recommended path.

Step 3: Understand What Your Company Is Worth

Obtaining an accurate business valuation before considering any Indication of Interest ("IoI") or Letter of Intent ("LOI") is an essential step that should never be overlooked. A high-quality business valuation serves as the cornerstone of your negotiation strategy, enabling you and your M&A team to negotiate with potential buyers with confidence, evidence, and transparency. At this point in the process, there are two primary ways to determine an accurate assessment of your business's value:

  1. Utilize a reputable online business valuation tool that leverages your financial data (revenue, EBITDA, and growth rate) to generate an accurate estimate.

  2. Work with industry-specific M&A experts or valuation professionals that can provide valuable insights and an in-depth analysis tailored to your industry or sector. Beyond basic financial multiples, their specialized knowledge and experience can identify hidden value drivers that may significantly impact your business's final valuation.

By utilizing one or both of these strategies, you can equip yourself with an understanding of your company's value and empower you and your team to navigate the selling process with informed decision-making.

How To Manage The Details of an Inbound Offer

If you've found the potential acquirer open to a pragmatic approach to purchasing your company, there are several key decisions and next steps that should be expected in the process.

Sign A Non-Disclosure Agreement (NDA)

Once you've decided to consider the inbound offer to buy your business, securing a non-disclosure agreement (NDA) is the critical next step. This legally binding document plays a pivotal role in safeguarding your most valuable asset—your company—from potential risks and unauthorized disclosures. By requiring interested parties to sign an NDA before delving into any confidential information, you can ensure that your sensitive business data, trade secrets, financials, customer details, and proprietary insights remain protected throughout the negotiation process. The NDA establishes a confidential relationship between you and the potential buyer, setting the stage for open and candid discussions while preserving your competitive advantage and confidentiality from competitors, customers, and employees. As a founder, your dedication and hard work have nurtured your business to its current success, and securing an NDA empowers you to proceed with confidence, knowing that you have taken the necessary steps to shield your company's integrity and maintain control over how its story unfolds.

Do Not Rush To Share Financial or Customer Information

Once an NDA is signed, your interested acquirer is certain to begin asking for detailed information about your financials, key customers and employees, your technology platform, and further details about the inner workings of your business. At this point of the negotiation, even under the coverage of an NDA, it is ok to hold back certain confidential information. With the help of your M&A Advisor or Investment Banker, you should be able to provide enough high level details about your business for the buyer to create a term sheet or Indication of Interest ("IoI") that is conditional on a deeper due diligence process later in the acquisition process.

It Is Not Necessary To Tell Your Team (Yet)

When you receive an inbound offer to purchase your business, it can be tempting to share the news with your team right away. After all, you're excited about the potential opportunity and you want to share the news with the people who have helped you build your company.

However, there are a few reasons why it's important to wait before telling your team too much about the potential of an acquisition:

1. The deal may not go through.

Even if an acquisition offer seems promising, there is always the possibility that the deal won't go through. If you tell your team about the offer too early and the deal falls through, it can create a lot of uncertainty and anxiety.

2. It can distract your team from their work.

When your team is focused on their work, they're more productive and efficient. If they're distracted by the news of a potential acquisition, it can impact their performance and create unnecessary distraction to the priorities of business.

3. It can lead to employee turnover.

If your team is worried about their future with the company, they may start looking for new jobs. This can be especially problematic if the acquisition is still in the early stages and the terms haven't been finalized.

Telling your team about an acquisition can be a big decision - there will be a time and place to involve your key employees in the process. For now, it is best to include as few individuals as possible in the discussion about selling the business.

The Final Steps of Selling Your Company

Once you are committed to the idea of an inbound offer, there are several final steps to get through prior to closing on the deal. At this point, your team of M&A experts and attorneys will take the lead to ensure that the process is handled professionally, and that all protections are put in place to ensure proper confidentiality throughout the transaction process:

  • Negotiate the terms of the deal. This includes the purchase price, payment terms, and any other terms that are important to you.

  • Indication of Interest / Letter of Intent. A non-binding document that expresses a party's interest in acquiring another company. It allows the parties to explore the potential deal and to determine if there is a fit.

  • Due diligence. Ideally, this should be a two-way process allowing both parties to dive into the details of the potential acquisition. For the buyer, they are looking to better understand the details of the selling entity, and validate their valuation assumptions defined in the term sheet or Letter of Intent. For the seller, they are looking to validate fit, strategic alignment, finalize protections for their teammates, and create a definitive plan for the post-transaction integration of the two companies

  • Purchase agreement. This is the legally binding agreement that your M&A Attorney create to ensure all important legal aspects of the negotiated deal are properly contemplated and documented.

  • Close the deal. This is the final step in the process, where the buyer and seller sign the paperwork and transfer funds per the details of the agreement.

  • Transition your company to the new owner. Per the details of of the purchase agreement, you will begin the formal integration process of the two companies.

Final Advice

Receiving an unsolicited inbound offer for your business can indeed be an ego boost, affirming that your hard work and vision have not gone unnoticed. However, it is important to realize that mishandling the situation could be extremely dangerous for your organization. Rushing into any M&A decision could lead to regret and missed opportunities. Instead, embrace this situation as an opportunity for introspection and strategic evaluation.

Take the time to seek guidance from experienced professionals, educate yourself on the nuances of mergers and acquisitions, and carefully assess the true value of your company through various valuation methods. The power is in your hands – use it wisely, and the rewards can be transformative.

Additional M&A Resources

Supercharging Your M&A Process and Maximizing Your Exit

Laying The Groundwork For M&A Success

How Your Investment Banker Can Be Critical To Recruiting The Right Buyer

The Importance of Negotiation and Buyer Selection in M&A

Avoid the Fourth Quarter Fumble: M&A Diligence and Documentation

Todd Sullivan.
Todd Sullivan

Todd graduated from Yale University where he was a 2-time MVP of Yale’s ice hockey team. After a year as a minor league hockey player in the San Jose Sharks and Toronto Maple Leafs organizations, Todd returned to school for his MBA at the University of Michigan where he graduated as Entrepreneur of the Year. Todd went on to build and sell four companies over the next 25 years with offices in Boston, San Francisco, Chicago, New York and Detroit. After the sale of his last business in 2015, Todd has dedicated his time to educating his fellow founders about the M&A process and helping many of them maximize the sale of their businesses.

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