5 Steps for Managing an Unsolicited Offer

You poured your heart, soul, time and capital into your business. Up until today, you assumed that this outpouring went unnoticed and unappreciated. But today, you’re sitting on an unsolicited offer that tells you otherwise. Your hard work has been noticed; someone wants to buy your company. Your hope is that your investment has appreciated – in the form of a valuable offer.

While you might not be ready to take the leap and sell, you should take such offers seriously and consider if this might be the right move. To assist you, we have put together five things to do when an unsolicited offer comes in.

1. Know your value

Despite representing one of the largest personal assets held by private business owners, the vast majority of business owners have very little understanding of the market value of their business. Business values are usually calculated through measures such as earnings, EBITDA, and “comp” multiples. An amalgam of all of these is usually the best method for a creating a thorough business valuation.  You may choose to do this on your own, but keep in mind that there are also a variety of professionals who can help put together these factors and provide you with a comprehensive view of your company’s value.

2. Understand buyer perspective

Now that you know what your company is worth, you want to know what it’s worth to the buyer. Knowing if it’s a strategic vs. a financial buyer, and the nuances in perspective, can make an impact on your decision-making process.

A financial buyer, usually a private equity firm, venture capital firm, hedge fund, family investment office or a high net worth individual that is primarily interested in a return on investment. The financial buyer’s inability to take advantage of synergies, often leads to lower multiples. 

A strategic buyer is a company in the industry, or a complimentary industry, that wants to create synergies between the two businesses. Strategic buyers are often willing and able to pay more for a company than financial buyers, but are less likely to retain all of your employees.

Understanding where your company will fit in this new venture is essential to evaluating if you are ready to sell.  Price is not the only important factor; getting to know the people and their intentions for your company can sway your decision.

3. Assemble a team

Experience matters, and chances are high that you have precious little experience in selling businesses. Experienced accountants, attorneys, investment bankers and advisors are all good people to have on your team. This team will provide strategy, resources and advice to ensure that you secure the best possible outcome in the transaction.

4. Develop a plan

Create a strategy of how you want to proceed next. Two options: you can choose to go with the company that provided the offer and start negotiating price or you can choose to expand the buyer-set and start a competitive process. If you decide to sell without running a competitive process, you run the risk of leaving value on the table.  However, you might save yourself some time, money and headaches by not running a full process and going to market. Either way, make sure you think through the alternatives carefully, consult with your trusted team and develop a plan that is best for the company and for yourself.

5. Don’t lose sight of the business

It’s easy to get wrapped up in the excitement of a possible sale, but it’s important that the business doesn’t suffer as a result of your attention being split. Focus on the business. Don’t underestimate the amount of time a buyer (or buyers) will consume, from document requests, to meetings, to negotiations, to closing that you, or your trusted team, will invest to navigate the sale. If you get too invested in the process, you may lose the ability to walk away and the company you have worked so hard to build may have lost momentum and value.

This is just an overview, and it’s key to understand that there are many additional and in-depth factors to consider in the context of an unsolicited offer. However, following the steps above will help you get organized and prepared to make the right decision.