One of the greatest fumbles owners make is handling the situation when they get approached by a prospective buyer who says “We’re interested in acquiring your company” and shortly thereafter an offer arrives.
- 85% of business owners don’t have and have given little thought to their formal exit strategy. Inadvertently they are counting on: “SOMEDAY, SOMEONE WILL COME ALONG AND WANT MY COMPANY”,
- 75% of their total net worth is the average that owners have tied up in their business,
- 65% of business owners have little or no understanding of the financial or strategic values of their company,
- 50% of shareholders sell their company without exploring their options
Waiting for a Buyer to Approach You is Not a Strategy
The odds that the best offer, with the best terms, and best cultural fit with your people coming from an unsolicited buyer are likely about the same as getting hit by lightning twice in one week.
We could write a small book about why owners and shareholders fall into this trap however it’s usually overconfidence in their own abilities and not understanding that they’re not prepared that causes them to go-it-alone. Being the bravest, smartest, hardest working problem solver is what built their company, and at the critical time when they should get help, they decide they’ll go-it-alone again. BOOM.
Know that an Unsolicited Buyer:
- Wants to save money by avoiding competition from others
- Hopes you’re one of the 65% that don’t know their true value
- Won’t offer to pay you for the synergies and strategic value you provide to them
- Is hoping you aren’t prepared to sell, so they will find reasons to lower value
- Wants to sell you on why “they know the market value”
- Knows more than you about structuring a deal in their favour
- Is banking on the fact that you’ll want to save money by not engaging an advisor
- Wants to pressure you to move quickly (before you wise up and engage an advisor)
- Often resells the business within a few years for substantially more than they paid you
Truisms to Consider:
- M&A Advisors earn on average a 5% success fee depending on transaction size and often increase overall deal value by 20% to 100% (more than paying for themselves)
- M&A Advisors bring you better buyers, resulting in greater post-transaction success
- M&A Advisors help you prepare, avoid costly mistakes, and minimize expensive buyer claw-backs
- It takes a lot of time to do this right and you’re already busy growing and running the business
Act, Don’t React
- Develop a relationship with an advisor before you need them – get to know them and help them get to know you and your company
- Get your company in order, always be ready and prepared to act
- Be aware of your value to various types of buyers every year
- Be prepared to say no, and to seek alternative purchasers
- Understand that an unsolicited offer is rarely the best offer, or even the best buyer
Let’s connect. Schedule an introductory confidential call with Kevin Tribe here.