An unsolicited offer is often the catalyst for much soul searching and can develop into unwanted distraction if not managed carefully, and quickly. When first assessing an unexpected proposal, business owners should consider the following:
Is the offer genuine?
Sometimes things are too good to be true. Key risks to consider are:
- offers which are poorly disguised ‘fishing expeditions’ to gather intelligence;
- the bidder lacks the necessary financial capacity;
- offers are advanced by brokers/agents, attempting to create a transaction where there is not yet a real buyer; and
- the ‘bait and switch’: an attractive up front offer, likely to diminish as the transaction proceeds.
To substantiate the offer, a credible bidder should be able to explain their motivation, basis of valuation and financial capacity early on.
Will the price be acceptable?
Ultimately, the transaction will only proceed if price is acceptable. If you are going to walk away, it is best to do so early. If you decide to entertain the offer:
- Critically assess the offer to determine whether it will survive due diligence.
- Consider an objective valuation of the business to benchmark the offer.
What will it take to proceed?
Both parties will expend significant effort to progress a transaction and it’s important to have realistic expectations of what it will take, and what might stop it.
Due diligence requirements may be significant, and are seldom spelt out in full up front. It is important to ‘look at the business through the eyes of the bidder’ and identify the availability and quality of the information that the bidder will require, as well as the level of work required to address issues that affect value or the transaction itself.
Additionally, offers may need a third party’s approval to be successful – such as financiers, minority or silent shareholders, customers, suppliers, or regulators.
Can you handle it?
Selling a business represents a great opportunity to monetise your hard work, but it can also be a huge distraction from business-as-usual and your strategic plan. An assessment of how ‘sale ready’ you are and your team’s capability will allow you to make an informed response to an unsolicited offer.