How To Handle Unsolicited Offers

August 2012       Download PDF      Print

Business owners may be skeptical of an unsolicited acquisition offer, but in some cases, such offers can provide great opportunities. The trouble with unsolicited offers is that anyone can make them. Potential sellers need to resolve three general issues about a prospective buyer and enlist the help of an M&A advisor.

It's not unusual for business owners to receive unsolicited bids for their company, even if they aren't planning to sell anytime soon. However, an unsolicited offer can be an opportunity.

The problem with unsolicited offers is that anyone can make them – and if you haven't considered selling before now, your company probably doesn't have a screening process in place to evaluate suitors. So it's essential that you enlist the help of an M&A advisor who can help you research the interested party, determine whether their offer is serious and decide whether selling now is in the best interests of you and your company.

Before pursuing a deal, you need to resolve three general issues about your prospective buyer:

1) Strategy

Is the buyer's long-term growth strategy built on continual expansion via acquisitions? Or does it operate more strategically and pursue only those companies whose products and services complement its own and will likely provide cost synergies? If the buyer is a private equity group, what is their typical 'hold time' until a company is resold?

2) Intentions

Does the buyer have a history of trying to snap up businesses on the cheap? If those targets declined the buyer's offers, has the buyer continued to aggressively pursue them? Is the buyer known for honoring its original term sheets?

3) Financials

Does the buyer seem well capitalized or overleveraged? If it doesn't have the cash to buy a business outright, is it capable of getting bank financing in what continues to be a tight credit market?

Know your own value

While you're investigating the potential buyer, obtain a business valuation. Knowing what your business is worth in the current market is essential if you're evaluating an offer or considering a sale right now. You might also want to approach other companies that are in the market for an acquisition. The threat of competition could improve your unsolicited buyer's bid and scare off "bottom feeders" with bad intentions.

Be prepared

Don't get caught off-guard by unsolicited bids. Obtain periodic business appraisals and keep your operations and financials in shape so you'll be ready when an opportunity presents itself.