Selling a Privately Owned Business – Briefing 18 – Selling to an Unsolicited Buyer
In this fourth in our series of blogs about different types of buyer, we look at “Unsolicited” approaches, which essentially means any external expression of interest or indeed actual Offer received unexpectedly. Here are some thoughts on how to deal with them.
• By their very nature you won’t have been expecting the approach, and may well not know the interested party, so dealing with it may feel both strange and indeed unwelcome – but it shouldn’t necessarily be. It does mean that you have been doing sufficiently well so that someone has noticed and is interested in your business.
• You need to look at this in a logical and methodical manner. Firstly, you need to think carefully and clinically about whether your business may indeed be for sale.
• If the timing just isn’t right and you are simply not for sale, then clearly you turn the approach away, but in a positive manner, you never know when the time might be right and you may wish to resume discussions.
• If you weren’t thinking of selling, but the time may well be right both for you and the business, then clearly you can progress matters, bearing in mind the key points below.
• However, it’s unwise to progress any kind of discussions with an unsolicited approach if you really don’t wish to sell, or if you’re only looking for that irresistible Offer, as with an unsolicited approach this rarely happens. Doing so will take up significant time and effort with a very low likelihood of a successful outcome.
If however your careful consideration confirms that you would countenance a sale, then you must proceed carefully and methodically. Here are some key points to bear in mind:
• Whilst you should remain positive, experience shows that the odds of closing a deal from an unsolicited approach are generally pretty slim, partly because that kind of approach is opportunistic rather than strategic.
• So the first thing is to determine how much you know about the potential buyer, not only their actual ability to complete an acquisition but the kind of business they are, how the businesses might fit together in future and other practical aspects.
• You always need to be careful that this isn’t simply a “fishing expedition” and that you are not just one of a number of businesses which are similarly contacted in the hope of one achieving a quick and cheap deal for the buyer.
• You must certainly be extremely careful about confidentiality, one of the first things to do is to get a full non-disclosure agreement (NDA) before you part with any meaningful information.
• A further key issue is the question of value. It is axiomatic that offers from unsolicited buyers reflect their own agenda, and not the market worth of your business. The nest key step for you is to determine what your business is worth to you, both in terms of ongoing future income and also on sale.
• It may well be that the approach is genuine and worthwhile, but nevertheless, proceed with caution. The key issue remains to achieve the proper value for your business and not a value based on the unsolicited buyer’s views. Some form of even limited marketing to establish at least in some measure the market value of the business is really essential.
• At this point, normal professional advice is always to seek specialist help to determine potential market value, not least so that you can then enter negotiations with the unsolicited buyer from a position of strength. You will clearly have been sufficiently successful as business owner to have reached a point where a potential buyer is interested in you, but when it comes to a sale, basically you don’t know what you don’t know!
• As negotiations progress you need to be clear about what the buyer wants from the business, and in particular from you as owner. For example, one key issue for most entrepreneurial owners is the concept of working for somebody else, after so many years of working for yourself.
• Finally, don’t do anything or divulge material or detailed information until you have a formal written Offer and a signed confidentiality agreement. You, not the buyer, must control the process, and remember that it’s easier to walk away early than allow things to progress until it’s too late.
As always, assembling an experienced team to assist with serious negotiations is massively helpful to achieving a successful outcome.
15 September 2017