Unsolicited offers to acquire middle-market companies are rising. Such offers can undervalue a business and can also lead to wasted time and effort. Owners should seek expert advice and follow best practices before responding to any unsolicited offer. For owners open to selling who receive unsolicited offers for their company, the best practices for dealing with an approach should include the following.
- Put together a team of experienced advisers and seek advice early. M&A requires a well-thought-out strategy with input from a variety of experts. You’ll need board members and advisers lined up and on the same page, and you should go to them for guidance early and often.
- Assess your objectives. Review your personal and business strategic goals with your advisers to determine whether a sale would make sense — or if it is better to remain independent on your current path.
- Perform thorough due diligence on the buyer. How well do you know the potential buyer? Does it have the financial wherewithal or expertise to complete an acquisition? Is it a competitor? What is the risk of sharing information? Be prepared, versus reacting to the situation.
- Protect your information. While learning as much as you can from the buyer’s initial outreach, avoid sharing too much early. Sign a mutual nondisclosure agreement, which can also prevent the buyer from approaching your employees.
- Determine your business’s worth. Get a third-party market valuation so you know what your business is worth. Unsolicited offers tend to be low, and buyers have their own agendas, which could sharply differ from yours.
- Present your finances effectively. Valuation is driven in large part by historical financials and future projections. Normalizing your finances helps determine the valuation and what a deal structure should look like and gives all parties a clear, consistent presentation of the numbers.
- Prepare for due diligence. Buyers will assess or confirm an offer by conducting diligence on your business. Are contracts in order? Do financial statements follow accounting standards? Are there any key liabilities, such as for legal issues or taxes? Financial advisers can help owners navigate the diligence process.
- Enter legal agreements strategically. Once you are ready to go forward, carefully negotiate the letter of intent. Consult with a lawyer who specializes in M&A to make sure you understand the full implications of the deal.
- Create a competitive process. Buyers may attempt unsolicited offers to achieve below-market deals. Bringing competition into the process enhances valuation and structure, and improves process timing. Do due diligence on competitors and other potential suitors. For larger deals, investment bankers can add significant value in bringing in the right buyers, positioning your company effectively and running a process to achieve optimal outcomes.
- Be flexible. Even under the best of circumstances, the sale process can be complicated and unpredictable, so be ready to adapt along the way.
In today’s M&A market, business owners need to be prepared for unsolicited offers. Know what your company is worth, negotiate meticulously and stick to your strategic objectives. ●
Joe DiRocco is Regional President of Fifth Third Bank, N.A. (Northern Ohio)
This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of its subsidiaries or affiliates. Deposit and credit products provided by Fifth Third Bank, National Association. Member FDIC.
