Even in today’s choppy economic
environment, mergers and acquisitions (M&A) are a common component of the business landscape. And with
millions of baby boomers reaching
retirement age within the next few
years, they will become even more common. Selling your business can be a
lucrative endeavor, one that provides
you the security and financial freedom
needed to retire comfortably.
“Selling their business is frequently the
largest transaction an owner will ever be
involved in,” says Rick Hunter, a managing director with B&V Capital Advisors
LLC, a subsidiary of Briggs & Veselka
Co. “It’s the culmination of years of
effort and a transaction that can definitively determine an owner’s net worth
and standard of living during their retirement years.”
Smart Business spoke with Hunter
about what you should do if you receive
an unsolicited offer on your company.
What do business owners need to watch out
for if they receive unsolicited offers?
The best way to answer this might be
to offer an example of a recent acquisition that began with such a letter from a
potential purchaser. The timing was
right for the owner so he thought: ‘Why
not let them come in, look around and
see where the process leads?’
He actually ended up getting an offer,
but it was set to expire in five days.
While the offer was more than adequate
for the owner’s retirement needs, it was
well below what he thought his business
was worth. Still, he was inclined to
accept the offer. He spent the next four
days attempting to negotiate a higher
price — all the while the clock was ticking. On the last day, the buyer disclosed
that it had another target company in its
sights and was prepared to let the offer
expire as scheduled in order to pursue
the other opportunity. That is, unless he
accepted the original offer.
The tactic used by the buying company
in this case may sound amateurish, but it is not uncommon. And walking away
from $6 million in order to start the
process anew is not as easy as it may
sound. Obviously, it would have been a
good idea to have known what the business was worth and to have gotten other
competitive bidders involved in the
process before the stakes got so high
and time so short.
The expiring offer equaled three times
cash flow. I knew the other company had
just paid a six multiple for a similar company. I recommended that the seller tell
the offering company that he needed to
think about such a big decision over the
weekend. The owner was concerned he
might lose his original offer, but the offering company agreed. By Monday morning, he accepted an offer equal to six
times cash flow for a total of $12 million.
What are the lessons a seller can draw
from this experience?
Well, I would not recommend depending on a stroke of luck as in this case, where we were able to get a team in
there to put an offer on the table over
the course of a weekend. A better way
would have been to begin a process
early on to ensure that you create a competitive bidding environment. If you
receive an unsolicited letter, then certainly begin the process before providing
any information.
So what would the steps be in such a
process of selling your company?
First, get a valuation of your company.
This will provide you with a benchmark
by which you can gauge potential offers
and may give you important insight into
the value drivers for your business. You
might also consider hiring an M&A
adviser. Your adviser would then provide
the valuation as the first step in the
engagement.
The next steps in the process would
include the preparation of a company
descriptive memorandum and a buyer
analysis, the selection of a marketing
strategy, approaching potential buyers,
buyer due diligence, solicitation and
analysis of proposals, negotiations and
closing. An M&A adviser can help with
all of this.
In addition to creating a competitive
bidding environment, a good adviser will
be able to act as your quarterback
through the process, overcoming obstacles along the way. And, advisers tend to
know how the game is played — they’ve
seen the tactics the other side uses and
know how to respond.
Confidentiality and the need to continue to focus on running your business are
also critical issues. Letting the business
underperform or having a customer find
out that you are for sale during the
process can kill a deal or result in a
painful renegotiation.
RICK HUNTER is managing director with B&V Capital Advisors LLC, a subsidiary of Briggs & Veselka Co. Reach him at (713) 366-8580 or [email protected].