A Practical Guide to Navigating Unexpected Offers for Your Business

Responding to Unsolicited Offers for Your Business

What is Causing Unsolicited Outreach from Interested Buyers?

• Buyers with private equity capital partners are increasing the pace at which they pursue targeted acquisitions
• Buyers hire professional advisors and develop teams to create acquisition target lists and pursue an outreach process
• Buyers are highly motivated to execute acquisitions as doing so makes their company more valuable

When You Receive an Unexpected Call or Email, What Should You Assume?

• The buyer is serious and has a strategic growth plan that is dependent upon successful execution of acquisitions
• The buyer is experienced in doing acquisitions and has a professionalized approach and process
• The buyer has sufficient capital to execute an acquisition of your company
• If you are on the buyer’s target list, management has preliminarily determined your company to be a strategic fit

What Does Unsolicited Outreach from a Buyer Signal?

• When key players target acquisitions for growth, it is typically a good environment for sellers in your industry
• Industries with meaningful consolidation taking place are observing some of the best environments ever for sellers
• Buyers with private equity capital partners often pay more for a business than any other type of buyer
• Buyer interest is situational and does not last indefinitely – buyers can change course quickly and redirect focus

Important DO’S

• Start consulting with your advisors the moment you receive an unexpected call or email from a buyer, as your initial responses will have important implications
• Take the buyer seriously, even if you don’t think you or your company is ready to engage in a sale process yet
• Respond quickly to the buyer and demonstrate enthusiasm to learn more about them and what is driving their interest Proactively ask the buyer why they are interested in an acquisition of your company
• Ask the buyer about its ownership – if they have a private equity partner, no further qualification is needed
• Show enthusiasm towards next steps, as this will motivate buyers to continue promoting your company internally
• Get your team of advisors ready as the process will move quickly – what you say, what you provide, and how you respond to the buyer from the very beginning will have material implications

Important DON'TS

• DO NOT SEND ANY FINANCIAL INFORMATION TO THE BUYER WITHOUT CONSULTING WITH YOUR ADVISORS
• Don’t downplay or minimize the potential that you can receive an attractive offer from the buyer
• Don’t under-commit to the process – make this a priority and give it meaningful time and attention
• Don’t hold back on advancing discussions with the buyer or wait to put your best foot forward until you see an offer
• Don’t resist sharing information the buyer needs to come up with a thoughtful offer with strong conviction behind it
• Don’t let your emotions get in the way – a buyer’s behavior is strategic and meant to lay groundwork for negotiations – a buyer's posturing may signal disinterest, but if they are at the table, they want to own your business
• Don't stop if the buyer presents an offer that is not appealing - how you respond from this point on could lead you to a more attractive offer that you are willing to accept

Responding to a Potential Buyer's Information Request - A Critical Step in the Process

Begin consulting with your advisors as soon as you receive an unsolicited call or email, even before your first response back to the buyer. Your initial response should be strategically thought out and your early communications will set the tone and positioning for how you can manage and progress the dialogue.

What Should You Expect Once the Dialogue Begins?

1. After initial discussions, the buyer may suggest a second call to continue learning more.
2. They will also advise that they can provide a short information request to enable them to produce an offer fairly quickly.
3. The buyer will convey how simple it should be for you to compile the information to provide to them and that it will not require much effort on your end – sounds simple and efficient, but that’s their intention and it is strategic.

DO NOT JUST RUN THE REPORTS AND DELIVER THEM TO THE BUYER AS REQUESTED – It is critical that your advisory team guides you on how to present the information you share with the buyer.

Your advisory team should also guide you on giving the buyer strategic direction when fulfilling their requests and on providing additional information that, while not requested, can drive them toward a more compelling offer.

Your advisory team will also help you to avoid sharing sensitive information that can be used against you competitively

The buyer making an unsolicited outreach may be the most strategic suitor for your business, and it may be the best environment for a sale that you could see, yet the window for action can be a limited duration.

How to Respond to a Buyer’s Information Request?

Respond enthusiastically and accommodate what the buyer is asking for – but take control of what information you present and provide relevant guidance on how they should interpret things. For example:

1. The buyer may not ask specifically, but proactively guide them on what your value proposition to customers is and what makes your business unique and differentiated amongst your competitors.
2. Be sure to communicate attractive features of your business to the buyer even if they don’t ask. For example:
   a. You don’t need to give away secrets or specific customer and prospect names, but if you have a reoccurring or repeatable revenue stream, make sure the buyer is fully aware of this, or
   b. If you believe your profit margins are superior to other industry participants, let the buyer know this, or
   c. If your base of customers, suppliers, products or services, etc. is diverse or unique, communicate that as well.
3. With respect to financial statements, buyers will normally ask for a few years of historical and recent year-to-date income statements and balance sheets. They’ll advise you to just download them from your system and send them

It seems efficient to just send over the statements as is and let the buyer do what they want with them – BUT DON’T, INSTEAD:

1. Tell the buyer you need time to work with your advisors to develop a summary presentation of the financials that adjust for one-time or non-recurring expenditures that would discontinue if you sold the company to them.
2. Tell the buyer you want to provide them with a narrative to help guide them on how they should interpret your historical financial results so that they can understand any anomalies or unique considerations.
3. Tell the buyer you want to also give them guidance on your forecasted performance and where you see the business heading – they won’t specifically ask for this because they know they may have to pay more for growth

Showing interest and enthusiasm will not hurt your leverage in the process – it will cause the buyer to commit more time, cost, and effort – which will help you gain leverage.

Jeff Semple is an accomplished business leader with over 30 years of experience, currently serving as a Northeast Ohio Area President. He has a proven track record in leadership, business development, team building, and financial management. Jeff is known for his expertise in implementing processes and systems to achieve repeatable and predictable results. In addition to his role as a president, Jeff also serves as a Vistage Small Business Chair, dedicating countless hours each year to helping presidents, CEOs, and business owners overcome challenges and transform obstacles into opportunities for growth.

Matt Melago is the Managing Director of Opportunity Capital LLC, where he is responsible for developing and leading the execution of M&A and financing transactions for the firm, with a primary focus on the Business Services and Industrial sectors.