Responding to an Unsolicited Buyer
Andre Galliath, President, Ceramic Products Group
Entrepreneurs often receive unsolicited offers to sell their business from companies or individuals. Many times these offers are from those simply “fishing” for bargains or resale opportunities compared with executing a defined strategy to find a company that fits their needs.
All of these offers during my years as an entrepreneur went into the circular basket – they were not worth a minute of my time. What did get my attention were queries (seldom an offer) from companies with acquisition criteria that were rigorously designed to find “a fit” that would benefit both parties.
In such cases you will soon realize the interested party is quite knowledgeable of your markets and products and most likely is approaching you as a result of careful research on you and your company or possibly through customer or personal references.
Assuming your interest is piqued, you need to respond by going through a series of gates, so to speak, to find out early on if the path is clear. First, determine if it is a good acquiring candidate. Can they meet your personal and business requirements for you to contemplate a sale? Naturally the answer will include their ability to satisfy your expectations for financial rewards, such as how much money, over what time period, and in what way will shareholders be paid for their equity (be it cash or stock).
Second, what is the long-term future you envision for your business and employees after you cash in, and to what degree can they accommodate these expectations? It is important to determine their post acquisition strategy and plans. Are they seeking a well-managed, profitable business to invest in that will continue to grow? Is it a roll-up, total integration, a buy-out, and dismantling of a competitor? Do you care?
Basically, if the acquiring company is concerned with balancing the interests of both parties with growth plans for your business, either to have it continue operating by itself or as part of their portfolio, then you most likely have a suitor worth pursuing. Ask for details on what synergistic opportunities can be derived to improve growth and performance, and ask what integration or significant changes are expected.
During this process, quickly educate yourself on the acquiring company, look at the financial history, forecasts, strategies, products offered, markets, and judge the strength of the business and the “fit” for you. A privately owned company is difficult to dissect, so be careful.
If you pass through these gates, then you must meet the key people in their organization. Lengthy business chatter along with casual conversation, making eye contact and a firm handshake are paramount. You either like them and you can discuss price, or you don’t.
If you are a golfer, you can also learn much more about the character and ethics of a person on the course. I have been on both sides of the aisle on acquisitions, and it is clear that the chemistry between the parties is a reliable indicator for passing through or turning back at the gate.
If you have a good CFO, the initial homework to provide financial information and forecasts using the security of a confidentiality agreement suffices to extract an offer from a suitor. When it’s time to hire counsel to spearhead your sale, you should select a firm with experience at your level of transaction.
If a foreign company is involved, let your domestic expert find and recommend a law firm with equal attributes overseas. Most sales are routine negotiations following a valuation process.
Should more than one suitor emerge, price negotiations can but do not necessarily become more intense. Quite often one suitor will step back and propose a fair price and strongly stress the long term benefits of better synergy and fit that can entice executive management to favor it. Sometimes these individuals have a long term interest in careers and in the future success of the business. It is usually a requirement for acquisitions geared to thrive quickly that executive management stay in place a minimum of two years.
Both parties need to strive to avoid mistakes to complete a successful acquisition, for the fit must be clearly beneficial to both companies. As the entrepreneur, make an effort to understand the sum of the post acquisition synergies, especially those from new and enhanced capabilities in the business functions whether they’re personnel, manufacturing, technology, marketing, or sales. Then weigh the risks of doing a sale or going on the entrepreneurial path.
A significant risk for any entrepreneur at some point in the business cycle is the possible need for a large capital infusion to keep his or her business growing at the rate the market is pushing it. This pressure is a major determinant for agreeing to sell a business, followed by retirement or shareholder exits. Whatever your motivation is, remember that you are entrusting a company, brand, and valuable employees to a new future. So make it a good one.
© 2006 Andre P. Galliath. All rights reserved.