Top 10 Reasons to Never Accept an Unsolicited Offer for Your Business

Professional M&A Advisors provide exceptional services to owners contemplating the sale of their business that can translate into higher prices paid for their business. And yet, many owners try to do this on their own or with their accountant or attorney because they have already found a buyer, want to save a success fee, or fear a breach of confidentiality. Below are the top reasons that such owners may want to consider retaining an experienced professional before the marketing and sale of their life’s work:

  1. You don’t really know what your business is worth. Even if you’ve had an appraisal to determine the company’s “fair market value”, do you know what it’s strategic and/or synergistic value is to the best buyer? Do you know what the buyer with the most opportunity with your business is likely to pay for it? M&A Advisors answer those questions.
  2. You have no idea of the value the buyer has placed upon your business….and they will never tell you! An M&A Advisor, however, is able to place buyers in a position that forces them to not only disclose all that your business is worth to them but to also pay you that price.
  3. If you already have a buyer for your business, what are the chances that it will be the buyer with the most opportunity who can afford to pay the most for it? Even if it is, what are the chances that they are willing to pay a strategic and/or synergistic premium for your business? Many M&A Advisors will provide a substantial discount if your buyer is the successful acquirer. The bad news is that the Seller’s buyer is almost never the successful one.
  4. Your business has not been properly prepared for sale. In some fashion, the offer you are going to receive for your business will depend upon its “true” cash flow potential (not its net income or current performance). buyers typically buy to grow and maximize future cash flow. Although they will never say, “I will pay you more because I understand the future cash flow potential”; their valuation will be a direct function of their understanding. An M&A Advisor will “recast” your current and past financials and help you project the future performance of the company in the hands of buyers with the most opportunity. There are many things that can be done to increase the amount you take home after the sale of your business.
  5. During the negotiations, you have no one in between you and the buyer acting as a buffer. An M&A Advisor is able to have difficult discussions and take “tough” positions without damaging your relationship with the buyer and jeopardizing a closing (the goal).
  6. Because of your inexperience in the negotiation of business transactions, you are at a serious disadvantage negotiating with someone who likely does it for a living. Imagine someone coming off the street trying to run your business! An experienced M&A Advisor has been to this rodeo many times before and knows the lay of the land.
  7. You are probably unfamiliar with representations, warranties, indemnification, and other provisions that will be negotiated into the Letter of Intent (LOI) and/or Purchase Agreement used in the sale of your business. Many M&A Advisors (including our firm) urge their clients to have the attorney draft a sample Letter of Intent for buyers to use when making an offer. In it, we seek to resolve the thorniest issues during the Letter of Intent stage when your negotiating leverage is at its peak rather than afterward when negotiating leverage shifts to the buyer. A draft Letter of Intent also provides buyers with the Seller’s preferred deal structure.
  8. It’s not the industry, the company, or its profitably that’s most important in maximizing price, it’s the process. M&A Advisors employ a proven process developed over years of experience to identify those buyers with the most opportunity from owning a particular business and then to create an environment of urgency and scarcity as they are placed in competition for it.
  9. If you think about it, your time required during a sales process that will take the better part of a year, it is far better spent working on and in your business. This is to assure that its performance does not drop off which can lower the price or cause a deal to fall through at the last minute, especially if you have no one whose sole mission during the 2-3 month due diligence the process is to keep the deal together and close at the price offered in the Letter of Intent.
  10. How are you going to maintain confidentiality during the sales process? How are you going to qualify buyers to be sure that only the capable and serious ones are allowed to even know you are for sale? Who is going to gather the material necessary for due diligence once you have the “right” buyer? Who is going to work with that buyer in expediting the due diligence process and keep the deal on track?

Professional representation is the only way for a Seller to attain the highest and best price for their business. It can only be reached when a process is employed that has three major stages: preparing the business for market, qualifying and educating buyers with the most opportunity, and most importantly, placing buyers in competition with one another to maximize value.

Steven Pappas – Touchstone Advisors