What to do When Approached by a Buyer for Your Company
Today many business owners are being approached and receiving unsolicited offers for their company. This could be from competitors, strategic corporations, or from private equity funds. This is because companies are struggling to grow organically, and acquisition is the way to do this. Foreign buyers find US an attractive place to do business.
Why does this happen? Companies are looking to grow through acquisition and private equity or financial buyers are sitting on record levels of cash that they are looking to utilize. Example: Private equity firm buys a start-up, expands it and then sells to larger firm.
What to do if you are approached?
Don’t make the mistake - “I just got a great offer – “I don’t want to rock the boat.”
Don’t try to do this on you own - If you decide to proceed get professional advice.
You need to understand the market value of the business – are you being offered a fair price. Many owners do not understand especially since they are unprepared. Too often the targets are unprepared.
It is a mistake to try this on your own because of a mismatch of capabilities. The buyers are sophisticated and have experience with many transactions. The targets are usually smaller start up companies and this might be their first deal.
Complexity of the transaction - selling a business is complex. Many nuanced responsibilities and obligations. Many items you might be liable for post-closing (reps and warrants, escrows, etc.).
When and how to provide confidential information – stage release of information. There should be an NDA in place but that is only the first step. Getting a value in place to determine if the valuation range is within reason. Plan what information is given to see that deal is progressing. You want to avoid a potential buyer on a fishing expedition.
Utilize an investment banker to create a competitive environment – lone bidder vs. potential for running a full sales process.
Gross offer vs. what net after taxes – Utilize tax advisors to evaluate/structure the transaction to minimize taxes.
Lawyer who’s experienced in mergers and acquisitions.
What due diligence should you as seller perform on the buyer?
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