Selling your shop is an emotional moment, so be prepared
It all starts with a phone call.
“Good afternoon. I represent an organization that is buying North American manufacturing businesses, and I’d like to speak with you about acquiring your company.”
If you are a business owner, you may one day find yourself on the receiving end of a phone call like this. These unsolicited approaches evoke numerous emotions in entrepreneurs, from excitement and curiosity to hesitation and distrust.
A disciplined approach is needed when responding to these inquiries to help you protect your businesses without undermining potentially lucrative future opportunities.
Before the Call
In most transactional situations, the party with the best information has an advantage. But some entrepreneurs shortchange themselves by not maintaining complete information about their businesses. Every business owner should regularly monitor:
- The market value of their company.
- The price at which they would be willing to sell.
- How ready they are for a sale.
These criteria can clarify many important decisions, including how to respond to an unsolicited offer. If your company’s value exceeds your goals and the timing makes sense for a transaction, you are well-positioned for a sale. Conversely, poor timing or a large valuation gap likely will result in time wasted on fruitless discussions.
During the Call
The first priority in responding to an unsolicited offer is to protect your business from potential harm. Many entrepreneurs worry about nosy opportunists masquerading as business buyers. While these characters do exist, fortunately they are a minority of all prospective acquirers. Nonetheless, you should remain vigilant when approached by any acquirer and be selective about the information you disclose.
It’s also important to qualify whoever is calling you. Dealing with low-probability buyers can consume your time and create unwanted disruptions. Acquirers of small to mid-size businesses range from large companies with vast financial resources to unfunded individuals undertaking their first commercial venture. The latter group will attempt to lock in terms with you before shopping their deal to potential investors in hopes that someone else will fund the transaction.
If your caller is qualified, we recommend maintaining composure and professionalism even if you are certain that you don’t want to sell at the moment. It may be tempting to abruptly hang up on the caller to emphasize that your business is not for sale, but by doing so, you risk coming across as ill-tempered and unreasonable. This may haunt you if you ever wish to re-engage with that same buyer.
A better approach is to cultivate a Rolodex of qualified acquirers that are interested in buying your business. On the call, politely emphasize that you are not prepared to sell, but you will take down their information and reach out if sale discussions become more appropriate.
Composure is equally important if you are open to considering a sale.
An inbound call from a well-known acquirer can be an exhilarating moment. But even small interactions require prudence. Savvy buyers will begin gauging an owner’s eagerness to exit from the very first conversation. Revealing too much enthusiasm about a potential sale may encourage a buyer to place a low initial bid for your business.
Instead, you want to establish a process for moving discussions forward without appearing too eager.
One option is to thank the caller for their interest and mention that you would like to speak with your M&A adviser. This approach buys you time to research the buyer and discuss their merits with your advisory team. It also increases your leverage against the buyer. When a buyer reaches out directly to a business owner, they usually hope to avoid competing against other bidders. If the buyer senses that a seller is preparing to run a competitive sale process, they may be more inclined to offer a higher price and faster closing to maximize their chances of winning the deal.
After the Call
By the end of the call, you will have qualified the buyer, secured time to think, and preserved the flexibility to either advance or decline discussions in good faith. You can reflect on your personal commitment to a sale and seek opinions of outside advisers. If you determine that you do not wish to proceed, call the buyer personally to inform them. Again, you want to maintain the relationship in case you want to re-engage in the future.
If you do decide to pursue a sale, you should determine the type of sale process you want to follow before reconnecting with the buyer. The three broad categories of M&A sales processes are a wide auction, a targeted auction, and a negotiated sale. Each has its own advantages and drawbacks.
Alma Johns is president and David Gingera is senior associate at Bench Capital Advisory Inc., email@example.com, 647-295-2562, benchcapital.ca.
This article has also been published in Canadian Metalworking’s web site.