Responding to Unsolicited Offers to Buy Your Company

by Peter Collins

Most CEOs have received them -- unsolicited offers to purchase their companies. Many offers look like they're from brokers or others using some type of a form letter. You immediately dismiss those. But what happens the day you suddenly think the offer looks like something you might be interested in?

"When you respond to an unsolicited offer, there are many things that can help you through the process," says Vistage speaker Peter Collins. "Whether you're tired and looking for an easy way out of your company or simply interested in the high price offered, when the discussions become serious it pays to know some basics."

Tips for Responding to Unsolicited Offers

1.Ask yourself the fundamental question: Do I really want to sell now -- even at a reasonable price -- or am I just trying to find out the value of my business? If you're only interested in determining the valuation, don't waste the time and energy -- or give away valuable information to a future competitor. Hiring a qualified appraiser or investment banker instead may actually be the route you should take.

2.Is your company special or has the suitor approached many similar companies, including your competition? "This is important to know since your competitor may be the company that your current suitor eventually purchases," Peter explains.

3.Find out if the buyer is qualified and worthy of your time and energy. "Ask questions including: What would you do with the company once you acquire it? How many other companies have you purchased and may I speak to them? Why my company?" Peter recommends. "If the company interested in purchasing your business is public, check it out on any of the financial Web sites and go to Edgar Online for its 10Ks and 10Qs. Also check any 8Ks for past acquisitions."

4.Have the suitor sign a non-disclosure agreement that includes a clause regarding employment of your staff. Many buyers visit with numerous acquisition candidates, using the process as a competitive intelligence-gathering exercise, according to Peter. "In the due diligence process, they may get to know key employees at your company. Should the deal fall through, you don't want them getting poached from you."

5.Understand the ground rules for valuation and know the value of your company. Never enter a negotiation without knowing the value of what you are negotiating for. Be able to backup any counter-offer with market data on similar companies.

6.Get help. You will only sell your company once. The buyer has probably purchased many companies. An investment banker's fees should be between 2 and 4 percent.

7.Never give out "raw" financial information. "Financial statements are prepared to minimize taxes, not maximize profitability," Peter explains. "They will probably include excess owner benefits, one-time charges and capital items that were expensed. Make sure all financial statements are adjusted for these add-backs before releasing them to any potential buyer."

8.Consider telling your key senior management about the offer. The buyer may want to speak with senior management at some point in the negotiation, or you may need management to gather information or explain your technology to the suitor. "Consider offering them a small share of the company in the form of a stock option that is only triggered by the sale. You'll then be sure they're aligned with your objectives," Peter advises.

9.Make sure you provide the buyer with all relevant information needed to understand your company's valuation. Valuation is determined by more than just financial performance. Customer concentration, length of relationship with customers, uniqueness of products or services, management depth, new products, competitive position, market share, etc., all play an important role in the value of your company.

"Only when the buyer is made aware of these facts can they determine whether they're willing to pay at the top of the range rather than the bottom or middle," Peter notes. "Don't assume that the buyer automatically understands your company's strengths."

10.Remember that selling your business will probably be the biggest transaction in your life. While an intermediary can play a significant role in the sale of your company, the passion must come from you. You must be the one to drive home the real strengths of your business.