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A Better Option to the Unsolicited Offer

The call came out of the blue. It was a group interested in buying the business. They needed information. Your company was a perfect fit. Just send us some details and we will be in touch.

Unsolicited interest can catch a business owner by surprise.

Mature owners who have created and built a business get interest out of the blue from an individual or another company. Amazingly, a normally reserved and careful businessperson ends up jumping through hoops, invests a lot of energy feeding the “interested party” with data, and then, to their disappointment, discovers the  business is not a “good fit” for the interested party.

So, what’s the problem with this picture and why is it showing up more frequently. There are two major sources:

  • Individuals seeking a chance to buy a company, take it to the “next level” and become the successor for the founder. This is a legitimate source of buyers, but without having information in hand and knowing more about the target company, their interest could be premature.
  • Company-led acquisition efforts where the entity hopes to buy a competitor or related enterprise to grow market share or open up a new territory. This is also a legitimate situation but should include the name of the buying entity and their representative.

Both are entirely legitimate strategies. Both can work. And we have worked with both types of buyer groups. But we also have information packets for them prepared in advance and a process in place that treats interested parties equally, while serving as the intermediary to shield the owner from the inevitable questions.

Most owners are not prepared for this surprise and unsolicited process. It can lead to an interruption in normal processes. The owner can take his or her eyes off the business to find data needed by the interested party. The owner ends up unveiling details about their operations, their approach and sometimes even their customer identities. They overlook that confidential information is now in the hands of someone they barely know.

This is like hiking without a trail or compass. What happens if the possible sale never happens?

Owners we work with often have been down this road. Frustrated and disappointed, they wonder what to do next. They turn to us with the feeling they would be better off with a different approach. As experienced advisors, we know the best paths to consummating a transition plan:

  • Develop a package of information we know will be needed by buyers.
  • Develop a market for the enterprise with potential competition for a deal.
  • Preserve confidentiality for the owner and the business, while enabling the owner to do what they do best: focus on business.

Businesses represented by an experienced M&A advisor get all of these.

Our thorough process takes time to pull together, but includes all of the following:

We prepare a confidential information memorandum (CIM) which presents the opportunity represented in the selling enterprise. It includes a financial profile that will help a prospect see if it is a good fit. There often are details about customers without names. (That is reserved for diligence.)

Typically the sales process will involve a “controlled auction” where the M&A advisor actively seeks prospects, provides them all the same data and a schedule for acquisition proposals. Prospects analyze the information and develop pricing that makes sense for them. They will be asked to express their proposal in a Letter of Interest or Letter of Intent(LOI). The “auction” with its deadline for proposals, gives owners a chance to see what the market will bear for their entity.

The advisor will try to get multiple offers, and then review these with the owners and other trusted advisors. They will be able to consider what is best for them, and which of the options makes the most sense.

A good example of this can be found on the football field: team effort. Tony Dungy, an experienced professional football coach, observed that the most successful leaders are those who surround themselves with people whose strengths complement their weaknesses. That is what makes for a successful team.*

When it is time to consider transitioning your company, look for an advisor who can offer you support and assist in presenting the company story. Clearly you were smart enough to create an enterprise. You have the best chance to win when it comes to a transition by getting help from others who have done this before and who can offer strengths and experience for your once in a lifetime transfer.

*The Mentor Leader: Secrets to Building People and Teams That Win Consistently, 2010, Tony Dungee, p60

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