One of the more exciting and complimentary experiences business owners have is receiving an unsolicited offer to buy their business. Having a private equity firm or large strategic buyer express a keen interest in discussing the acquisition of their company is both gratifying and a potentially life-changing event. According to Ari Fuchs of The DAK Group, unsolicited offers aren’t uncommon: Almost one in three business owners reported receiving an unsolicited offer in the last 12 months.

Given that 75% of owners would sell their businesses today if they achieved financial security, many owners respond favorably to unsolicited offers. When this occurs, as it eventually does for successful owners, it’s in the owner’s best interest to contact an advisor immediately. Otherwise, the first call the advisor gets may be a request to review a signed Letter of Intent, or even a definitive purchase agreement. At that point, it may be too late to pause and evaluate whether the proposed deal satisfies the owner’s goals and aspirations.

To business owners, the temptation to cash in on the business, never have to work again, and have enough money to live comfortably might be too overwhelming to ignore. It’s the advisor’s job to act as an expert, objective sounding board to determine whether the offer is worth considering before it’s too late. There are a couple ways advisors can do that at the outset.

1. Evaluate the owner’s goals: A successful business exit, by definition, ensures that business owners can exit with financial security. While an unsolicited offer may look like it provides financial security, it’s impossible to know whether that’s true without first establishing what it takes for a business owner to achieve financial security.

Because every business owner has a unique financial security amount, advisors must help them establish that number before they can know whether an unsolicited offer is worth pursuing. This may require a financial advisor, among others, to determine what the owner needs, after taxes and fees, to live their desired post-exit lifestyle.

After evaluating the financial security goal, advisors must then help owners determine whether a third-party sale is the right path. For example, one owner might be perfectly comfortable selling the business for the money they need for financial security and letting the new owner mold the business however they choose. But many owners have other goals—such as keeping the business in the family or assuring that the business stays in the community—that may not jibe with a third-party sale.

An unsolicited offer to buy the business is only worth pursuing if it likely meets the owner’s financial security, universal, and values-based goals. The only way to know whether it meets those goals is to know what those goals are and what the owner’s other financial resources are. Advisors must work diligently to identify those goals and resources with owners.

2. Level the playing field: Professional buyers are sophisticated and persuasive. They also want to purchase companies for the lowest amount of money. If an owner is staring down a large sum of money, it can be tempting to rush into a deal. Advisors must help owners avoid this fate. Exit Planning Advisors cultivate relationships with a wide number of professionals, including several advisors who help business owners in this situation. M&A attorneys, not the owner, should be involved in any negotiation. Investment bankers can determine a range of likely pricing for the sale of the company. Tax counsel can quickly determine tax consequences and alternatives. The initial and early involvement of these advisors is crucial for preventing owners from leaping into a deal like a lamb being led to slaughter.  

In short, there are several advisors who are experts in getting the best deal for owners. Exit Planning Advisors have networks of these advisors, making them a convenient touchpoint when considering an unsolicited offer.

Takeaways

• Unsolicited offers to buy the business are common, potentially life changing, and often exhilarating for business owners.
• It’s impossible to properly consider an offer without knowing what the owner’s financial and other Exit Goals are.
• Successful owners constantly get unsolicited offers. Advisors must counsel owners to contact them immediately after they get an offer so that advisors can help owners maximize their results.
• Exit Planning Advisors include experienced M&A attorneys, investment bankers, and tax counsel on their Advisor Team. This allows the team to act quickly to ensure that the sale process, if it proceeds, maximizes the benefit to the owner.

For more information on this an other Transition Planning Topics, please visit the CORE Strategic Business Solutions website