So you’ve received an offer to purchase your business. Perhaps a competitor asks you to lunch and casually broaches the subject. Or a vendor makes an overture to purchase your company. Maybe a business broker calls and has a client that wants to make an offer to purchase your business.
As a valuation firm, we see this scenario all the time. More often than not, we receive a call from the seller trying to figure out what to do.
Here’s our battleplan.
Step 1: Slow Things Down
There really is no hurry right off the bat, regardless of what the buyer is telling you. The offer is only good until midnight? Rarely true. The buyer is looking at other companies as well? I’m sure they are. But before being pushed to negotiate on terms, it’s time to take a step back, understand the bigger picture… and THEN engage in negotiations.
Step 2: Understand Your Valuation
You cannot in good conscience negotiate the sale of your company without understand the actual value of the business. This is indisputable fact. You would not negotiate to sell your house without understanding its likely value. You would not go to the dealer and trade in your car without first knowing its value. It is truly impossible to effectively negotiate without understanding your value.
Get this step right. Retain a valuation firm that you trust, that is certified, and that can detail and explain the value of your company.
Step 3: Understand Their Ability to Purchase
Once you are ready to negotiate, the buyer is going to request financial statements. They’ll want to review your numbers in order to do their own valuation. At the same time, it’s entirely reasonable to understand their ability to actually consummate the sale. Do they have cash on hand for the purchase? Other investors? Will they require a bank loan? Ask.
Tip: If you work with a good business broker or M&A intermediary they often will help you through this screening process.
Step 4: Go Shop
There’s an old saying in the M&A world “One buyer is no buyer.” Business sales are tough business. There’s a good chance that the first buyer through the door won’t be the actual buyer. You have a moment of opportunity before signing an LOI (which will likely contain a “no shop” provision) to go look for other buyers. A reasonable buyer will understand your desire (and responsibility to shareholders) to seek the best valuation possible for investors.
Step 5: Speed Things Up
Once you have decided to move forward with a deal it’s time to speed things up. Time kills deals. By having your business in order, documents prepared for due diligence, and a good transaction attorney retained, you can maintain momentum in your transaction and push the deal to a successful close.