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Dealing With an Unsolicited Offer for Your Company

What Should I Do?

What Should I Do?

An unsolicited approach to buy your company creates an interesting dilemma for any business owner. This is especially the case if your plan was always to build the company in preparation for an exit sale. An experienced UK business broker offers some advice on how to deal with this tricky situation.

We often hear when prospecting new clients “I’m not ready to retire – but if someone makes me a high enough offer”. So what to do if an unsolicited offer comes along? For the strongest minded owner this is a test of resolve.

You are doing well at the moment but things can go wrong very quickly. The loss of a major customer, a large bad debt or a sudden illness might turn a profitable company into a loss maker. An attractive, valuable asset becomes a difficult to sell lemon. The temptation to find out how much money is on offer is likely to be irresistible.
Two Questions You Should Ask Before Accepting An Unsolicited Offer
Is the offer a fair price for my company?

Some brokers are adamant that an immediate search for competing offers is the only way to find out if an offer is the best available. We are less prescriptive than that but a professional valuation is essential. This will cost a few hundred pounds and could stop you throwing away a large sum of money. Buyers often make unsolicited approaches specifically with the intention of avoiding competitive situations that will force them to pay a full price. Because of this unsolicited offers are almost always a little lower than you would have hoped for.

Who should you use to prepare a valuation? Most company owners go to their accountant. This might be a mistake. Most firms of accountants are tax advisors with limited experience of selling companies. To cover this inexperience they tend to value on the high side when advising a seller, and on the low side when advising a buyer. Some large firms of accountants have corporate finance partners that are experts in selling companies. If your accountant does not have a corporate finance partner ask an experienced business broker or a specialist corporate finance practice to value your business.

With a professional valuation in hand you will be in a much better position to decide if the unsolicited offer is one you should take seriously. If the valuation is much higher than the offer the decision is straightforward. If the valuation is say 10-20% higher than the offer the decision becomes more difficult.

Could I get a better offer by actively marketing the company?

If you are less than happy with the price offered by an unsolicited buyer it is possible to begin the process of marketing your company to other potential buyers once the offer is on the table. As the original approach was unsolicited you may not be minded to go down this route, but if you do it will usually take at least 3 months, possibly 4 or 5 months, to get other offers on the table. See our article How Long Will it Take to Sell My Company? The risk is that the offer from the original party will have gone cold after this length of time, and there is no absolute certainty that a better offer will be found. This is the benefit to the buyer of an unsolicited approach. They hope to find the seller that will take the certainty of a slightly disappointing “bird in the hand”, rather than the uncertainty of a broader search for a buyer.
So What Is The Best Approach?
The best approach depends on the seller’s starting point. If a sale is not really on your mind before the approach don’t accept an offer that is for less than the high end of a professional valuation. If you are contemplating a sale in the next couple of years it is probably best to see a serious unsolicited approach as the starting gun for a full blown sale process. You may well be able to find a broker that will accept a fixed minimum fee if your business is sold to the unsolicited buyer, plus a percentage of any improvement in the unsolicited offer earned through their efforts. See the minimum fee as an insurance policy against leaving money on the table.

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

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One comment on “Dealing With an Unsolicited Offer for Your Company

  1. Pingback: How to Choose The Right Business Broker To Sell Your Company | Select Business Sales

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