How to Handle Unsolicited Offers for Your Business: Dos & Don’ts

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.

TL;DR - Dos and Don'ts When Dealing with Unsolicited Offers for Your Business

In a hurry?

Here's a quick overview of the critical dos and don't of how you should deal with unsolicited offers:

Even if you follow these dos and don’ts, there’s room for making costly mistakes (and you have a business to continue running).

We recommend you seek the help of experts—an M&A attorney, financial advisor, consultant, and tax accountant—in an unsolicited offer situation. 

Don’t know where to find them? Don’t fret!

At Exitwise, we help businesses find, interview, and hire experienced M&A professionals and negotiate their fees.

Partner with us today, and let us help you find the best M&A professionals to give you peace of mind!

What Constitutes an Unsolicited Offer?

An unsolicited bid is a proposal to buy a company that is not actively looking for a buyer.

The key features of an unsolicited offer include:

• The buyer has a strategic reason for the acquisition.

• The recipient (in this case, the target company) did not expect or request the offer.

• Sometimes, they come with a higher price to entice the target company and require the target company to respond quickly.

• Some can be friendly (the target company is seeking a buyer and is open to negotiation), while others can be hostile (a company attempting to take over).

Difference Between Solicited and Unsolicited Offers

Let’s break down the differences between solicited and unsolicited offers:

Why Buyers Initiate Unsolicited Offers

Why are unsolicited offers are common?

Let’s break down some of the reasons why buyers might pursue M&A deals:

• Control Its Market Share: Acquiring a company helps businesses expand their market share, strengthen their market position, and make them more competitive.

• Access to Resources: Companies might pursue an unsolicited offer to gain access to valuable patents, intellectual property, unique technology, and human capital.

• Limit Competition: If your business has a broad customer base, another company can pursue an unsolicited offer to reduce the market rivalry and enhance its pricing power.

How to Evaluate Unsolicited Offers

When a potential buyer reaches out, how do you evaluate the offer to maximize the opportunity and sell wisely?

Let's explore the common 4 steps you should take to evaluate unsolicited offers:

1. The Initial Considerations

You should conduct reverse due diligence on the prospective buyer and verify the seriousness of the deal.

Take the time to review the buyer’s offer, their professional background, business history, and plans.

2. Assess Your Business's Current Value

Seek a professional valuation of your business. The valuation expert will analyze your financial statements, including the balance sheet and cash flow statements.

They also review your business revenue projections in the past years and calculate your EBITDA.

Armed with this information, you can compare your business valuation to your offer price and determine if it's fair, too low, or exceptionally high.

Tip: If you want to get an idea about your potential valuation before consulting experts, check out our valuation calculator.

3. Consider the Buyer's Strategic Fit

Does selling your business to a specific buyer align with your long-term business goals? Assess whether the offer complements your existing operations, priorities, and aspirations.

For example, discuss the buyer's integration roadmap for a successful merger and see how it impacts your market position, employees, and industry standing.

Consider consulting key investors, business partners, and M&A professional advisors for their opinions.

3. Review Existing Legal Contracts and Operations

If you are concerned about the legitimacy of the proposed offer and other legal concerns, you should seek legal advice from an M&A attorney. 

They can help you review existing contracts to ensure no legal hurdles could affect the sale and that the transaction meets legal and industry regulations. 

4. Consider Your Negotiation Power

Maintain some control over the process to give yourself the best chance to negotiate a fair price and reasonable terms. 

Quick Tip!

Every deal is different, so if you're not experienced in selling a business, it's a good idea to take the guesswork out of the process and engage M&A professionals to help you.

Schedule a consultation, and let us help you hire top M&A experts to negotiate the best possible deal for your business.

What to Consider Before Accepting an Unsolicited Offer

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.

Final Steps Before Closing an Inbound Business Deal

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.

Key Red Flags to Look For in an Unsolicited Offer

In the case of unsolicited offers, a lot could go wrong.

Be wary of these red flags that indicate a bad deal and an untrustworthy buyer:

• Request Your Business Information: It is a major red flag if a business asks for your sensitive business information up front under the guise of conducting due diligence.

• Unusually High Returns: If the offer promises too-good-to-be-true returns with little or no risk, it is a fraud. Even legitimate offers involve some level of risk.

• Pressure Tactic: A major red flag is when a buyer creates a sense of urgency that prevents you from taking your time to research the offer. The buyer must not pressure you to make a quick decision and should give you time to consult professional advisors and review the offer.

Just like most people don’t represent themselves in court, you probably shouldn’t represent yourself during an unsolicited offer.

Best Practices for Responding to Unsolicited Offers

Here’s how to handle unsolicited business sales inquiries:

1. Don’t Make a Rushed Decision: Avoid making impulsive decisions under pressure. You should be prepared to leave an offer if it doesn’t align with your best interests. 

2. Share Details Strategically: To avoid disruptions and pressures, share your business details in steps (only as required) instead of giving away everything in one go.

3. Protect Your Business Data: Before sharing sensitive business information, insist on a non-disclosure agreement (NDA). You should also have an Indication of Interest (IOI) to show the buyer's commitment and prevent misuse of your information.

4. Evaluate the Future of Your Business: Understand what the buyer might achieve from the M&A deal. Also, check if you could yield higher returns if you held onto your business.

5. Clearly Define Your Expectations: You should set clear terms and expectations early and communicate your negotiables and non-negotiables during the negotiation process.

The Key Best Practice! 

Engage M&A professionals like business brokers, financial advisors, accountants, and investor bankers to help you negotiate. They can help you understand the terms of the offer and craft a counteroffer if necessary.

Want an easy yet trusted way to interview and assemble a team of advisors?

Check our exhaustive process to learn everything you need about the deal terms.

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.

Frequently Asked Questions (FAQs)

Have more questions about unsolicited offers? Check out some quick answers below:

Can Unsolicited Offers Be a Sign of Financial Instability in the Buyer?

Yes, unsolicited offers can signal financial instability in the buyer.

• The acquiring company might be struggling financially and trying to boost its revenues quickly.

• Some buyers might be in debt and relying on acquisitions to stay competitive.

• The buyer might get into aggressive acquisitions to impress investors using borrowed money.

How Do Unsolicited Offers Impact My Business's Reputation?

Unsolicited offers can impact your business reputation both positively and negatively:

How Do I Decide Whether to Counter an Unsolicited Offer or Reject It?

You should decide whether you should counter an unsolicited offer or reject it after taking these 5 steps:

1. Assess the buyer’s intention and reputation.

2. Evaluate the offer terms and compare them to your business's market value.

3. Review your business position, the potential to grow, and the potential for better deals in the future.

4. Check other competing offers and if you can negotiate the offer.

5. Consult M&A professionals to analyze the risks, taxes, and legal aspects of the deal.

Conclusion

When you are about to make substantial business decisions in your life, you have to be cautious.

At Exitwise, we will help you hire M&A experts to protect you at every step of your deal, from valuing your business to closing the deal.

Contact us today to get the best shot to maximize your opportunity of an unsolicited offer.

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