Common situation: Your business is thriving and you have no intention of selling it…at least not yet. But out of the blue, you receive an offer for your company that seems too good to ignore. Should you embrace the prospective buyer with open arms or walk away because you’re not ready to sell? The answer is neither.

Details will vary from business to business, and within different industries, but here are five key steps in a comprehensive game plan.

  1. Do your due diligence. Learn everything you can about the prospective buyer. Is it a competitor who wants to gobble up your company, a private equity group trying to pay less than what the business is worth, or someone who merely wants to kick the tires on your operation? Be aware that you will be giving up some leverage if you only negotiate with one buyer, as opposed to opening it to widespread bidding.
  2. Rally your team. Responding to an unsolicited offer can be nerve-racking, but at least you don’t have to go it alone. Rely on professional advisors to steer you in the right direction and handle all the technical nitty-gritty. Typically, the team will be comprised of the following members:
    •  CPA: This business and tax advisor generally serves as the quarterback of the team.
    • Attorney: The attorney will also have a strong presence. It’s best to use one specializing in mergers and acquisitions.
    • Investment banker: A banker is often essential to financing the deal and may also act as an intermediary.
    • Financial planner: The planner can help focus on related matters such as wealth management and succession planning.
  3. Have a valuation done. One of the mistakes most often made by sellers is underpricing or overpricing their business. Don’t assume you know what your business is worth. More often than not, a seller will overvalue their company due to the emotional ties and the time it took to create the business. That being said, you don’t want to sell too low either. The best approach is to have a valuation conducted by an independent expert. This is a good idea even if the offer is revoked, because it provides a picture of where you stand in the present, how much you may expect when you eventually sell the company and how much ground you need to cover to make up any difference.
  4. Assess the risks. A risk assessment is usually conducted in conjunction with a business valuation. It focuses on the driving forces behind the value of the company and the possible obstacles in the way. By taking this step, you can determine if it makes financial sense to go ahead with the deal and move it one step closer to fruition.
  5. Keep running on all cylinders. Last, but certainly not least, remember that you have to keep the company functioning at top capacity, even if you’re seriously entertaining an offer to sell it. Don’t be distracted and take your foot off the pedal. For one thing, the prospective buyer might try to renegotiate the price if the business starts to falter. For another, you run the risk of devaluing the business and damaging your reputation within the industry. Finally, you owe it to your loyal employees, customers and clients to stay the course.

If you get an unsolicited offer to buy your business, it can’t hurt to listen, especially if a major player is in the mix. But this doesn’t mean you have to jump first and then ask questions later. Develop your plan as discussed above and stick to the guiding principles.

Do you have questions about maximizing the value of your business, or other value acceleration/exit planning issues? Please contact Greg Pasiadis at 440-449-6800 or gpasiadis@skodaminotti.com.

Anatomy of an Acquisition E-book