You receive an approach to buy your business – what do you do next?

Frequently, we make approaches to owners of companies that are not for sale, on behalf of our acquisitive clients. The response we receive from business owners varies wildly from:

• “It’s nice to be wanted, right? Let’s have a chat…”
• to the point blank “my business is not for sale”.

Clearly, the answer completely depends on the owner’s circumstances. However, I would always encourage a vendor to listen to the approach, and when it is my client on the receiving end of the interest, I always highlight the following:

1. There must be a strategic reason behind the approach

Acquisitive businesses don’t just scattergun approaches to companies that aren’t for sale, hoping for a cheap and quick deal. This isn’t an effective use of their time, and there is very rarely a cheap deal that is not already on the market.

I know that we work hard with our acquisitive clients to work out why a specific target should fit with their acquisition criteria. We will look at the target’s market positioning, their probable customers, their likely supply chain, their routes to market, their management team and ownership structure – alongside the more simplistic attributes such as location, size and age of the owners.

If they are approaching you, where’s the harm in finding out why they chose to talk to you?

2. Why not explore the opportunity?

Clearly most vendors immediately talk about confidentiality. Whilst confidentially agreements can be put in place, sharing information with a potential acquirer can be dangerous if not approached in the right way. However, responding to requests for information is in your control – you can always refrain from providing information you do not feel comfortable providing.
Why not move onto the next stage and take up the opportunity to meet a potential buyer? What you can get out of meeting them is often more valuable to you than the information they can glean from you in the first meeting. They will talk about their strategy, their reasons for approaching you, their views of the market and some of the research they have carried out can prove extremely interesting.

3. Timing is everything

You don’t have to do a deal with the purchaser now, it could be a catalyst for you to consider working on the areas of your business that need improving before your exit. It could be that you would consider a sale in a few years’ time and the purchaser gives you an idea of how they would value your business.

The best part is you can work out now if your business could fit with their culture and you could therefore have a ready-made buyer lined up for your future exit.

4. Get advice

Having an advisor on your side from the moment you receive the approach will be invaluable. They will be able to understand the merits and pitfalls of any deal, your market place for deals generally, and will be able to suggest other routes for your exit, including timeframes, acquirers, whether your management team could be interested and able to complete an acquisition, whether private equity could work for you and how to fund and structure a deal efficiently.

In summary…

Where’s the harm in entertaining the business that has shown an interest in you? It could be of great benefit to understand their reasons for approaching you, their view on your market and their views on you. With an advisor on board, you will also be able to reflect on this approach, consider other strategic opportunities available and carry out the planning to ensure that the timing is right for you.

Should you receive an unsolicited approach to sell your business, do give us a call, and we’ll be happy to offer the guidance and support to move you and your business forward.