With a record $6 Trillion in capital available, it’s a hot M&A market. Companies are receiving a record number of inbound offers from potential suitors. So, how you respond is critical. Here are seven tips to help you handle unsolicited offers.
1. The stats are against you.
Only 11% of buyer solicitations actually result in a transaction. That's about one in 10. You get all excited when those inbound offers come in and you start dreaming about the future. The problem is you may be one of the 90% that don't get done. Be careful.
2. Bottom Feeders
Most buyers who make that first call are bottom feeders. These buyers repeatedly put offers on the table that are well below the value of the company they're trying to acquire. They come in fast and strong. Identify these bottom feeders quickly. They'll waste a lot of your time, and use tactics like saying, “we'll walk away if you want speak to others or hire an advisor.” It never turns out well for the seller.
3. NDAs
Get a non-disclosure agreement and possibly a non-solicitation agreement in place. You have to be careful to protect your technology, algorithms, and ideas, your secret sauce. Protect yourself.
4. Qualify All Buyers
The load on your management team for calls, presentations, and visits will be significant and distracting. So, there's no sense wasting time with buyers who can't or won't conclude a deal. You need to quickly determine if the buyer is willing and able to pay a reasonable price and how they're planning to fund the deal. Ask questions. You need to qualify the credentials of the buyer, most certainly their acquisition experience and track record.
5. Get Other Bids
Get other bids if you think you want to sell. Go global. Buyers are everywhere. Hire an advisor who knows both strategic and financial buyers. Including the search, family and angel funds.
6. Beware of Responding with a Valuation
Leading with a valuation gives away your greatest leverage. If the process is managed right, you can improve your value up an average of 48%.
7. Get Your Stakeholders on Board
You have a fiduciary responsibility to your shareholders to maximize value, even when you have an attractive sounding deal in front of you. You can't do that talking to just one buyer. One buyer is indeed no buyer.
The stakes are high when you get approached with an unsolicited inbound offer. For many of you, this is the time to get some help, and call in professional advice to help you work through the issues. You may not get a second chance.