You’re going about your business as usual and then the phone rings, or an email drops into your inbox – “We’ve been looking for an acquisition and we think your company would be a great fit, we’d love to talk”. Now your suddenly Googling, ‘what to do when someone offers to buy your business’… because it’s not an everyday occurrence and it might not be something you feel particularly well prepared for.
The very first thing to say is, well done! You have clearly built a successful business that is getting attention and is, on the face of it, an attractive acquisition target. It’s great that someone sees potential in what you have built, they may make you an offer that appears good and tell you that you need to move quick. But there are some important questions you need to answer first, for example, am I ready to exit? Is our business ready for sale? How much is our business worth? Is now a good time to sell?
With so many questions to answer, coupled with so much excitement around an approach, it is perhaps understandable that many business owners rush into making a decision, but we would say…
Don’t rush into it…
It may be the only approach you have had, but don’t let that hurry you into making commitments you are not ready for. We would suggest being non-committal in your initial response. Thank them for their interest and suggest to them that you will need time to properly consider the approach and will come back to them in a couple of weeks.
Give yourself time to properly consider if this is the right time for you and the business. Get some advice and have a conversation with a reputable corporate finance company who can help you explore your situation and answer some of those questions. You may find the idea grows on you as you think about it, or that what initially seemed like a brilliant idea seems less desirable after giving it some thought.
Remember, turning this approach down doesn’t mean you won’t be able to find an interested party later down the line when the time is right.
Flattery is cheap…
It is really easy to be flattered by an approach – in fact any decent approach will be aiming to do exactly that – especially if the approach is from a well-known company. But remember that flattery is cheap, and too often in these situations it can actually become costly when it is the driving force behind negotiations.
A company or investor approaching you is a strong indication that your business is an attractive proposition. If it coincides with your desire to sell, or even triggers that desire in you, then it should be the catalyst to take it to market properly and not be caught in the headlights thinking you only have one option.
Only having one option and getting caught up in the flattery of an interested party will lead to concessions being made in negotiations that do not need to be made.
Don’t try to go it alone…
The temptation to enter into discussions without introducing a third party will be strong – after all, you probably have very good negotiating skills. But there is so much more to selling a business than people often realise: the personal attachment to the business, understanding valuation methodologies and the mountain of paperwork required for due diligence to name a few.
Remember that companies and investors who make approaches like this will typically be making multiple acquisitions every year – it is certainly very unlikely to be their first. So, make sure you have an experienced company like Entrepreneurs Hub on your side to ensure you are fully prepared to maximise the value and terms of the deal.
Competition is one of the biggest drivers of value…
Even if you ultimately intend to sell to the company or investor who approached you, it is essential to introduce an element of competition. This is not a disingenuous tactic; it is part of any sensible company sale strategy. There are three reasons why you need to introduce some competition.
1. Going through the exercise is valuable as it will help you to fully understand what is attractive about your business, there may be some areas highlighted that you hadn’t thought of and put a different complexion on the offer you received.
2. It is important in the negotiation phase to know, and for the acquirer to know, you have a plan B. It’s an incentive to do a good deal and not to stall.
3. You might just uncover a better option – someone who is willing to pay more and offer better terms, or that may even be a better home for your business.
We hope that the above has given you some top tips on what to do if someone offers to buy your business. If you have had an offer to buy your business, we would seriously encourage you to get some advice. Entrepreneurs Hub offer a free, confidential meeting – with no obligation – where we can discuss your situation, provide a guide valuation range and help you make the ‘what next’ choices. Even if you haven’t had an approach, but are considering your exit options, you can still get in touch and we would welcome the opportunity to do a review with you to assess saleability and potential value range. You might also be interested to read our Guide to Selling your Business in 2023.