What to do if a buyer approaches you unsolicited
Know what to do and who to speak to when opportunity knocks.
10 November 2022 • 4 minute read
It can feel flattering when somebody, suddenly out of the blue, offers to buy your business. Preparing for such an event will help ensure that whatever follows will be the right outcome for you. You might miss out on a golden opportunity or sell below market value if you’re unprepared.
Paul Dodgshon at business brokers Uscita, says: "Your immediate response to the buyer should be, 'thank you very much. I wasn't thinking of selling, but if your offer is good enough, I will consider it'."
It's important to remember that the buyer approached you; that gives you a reasonable amount of control and an opportunity to do your homework on the suitor.
Your immediate response to the buyer should be, 'thank you very much. I wasn't thinking of selling, but if your offer is good enough, I will consider it'
Do your research
With a cold approach, you don't know who the buyer really is until you've done your research. Before you progress on a deal, founders should seek reassurance that the acquirer is a good fit for the business. The better the match, the more leverage you have in negotiation.
You also need confidence that the buyer will follow through. You might want to know what other acquisitions they've made and how the process went. Don’t be afraid to ask for references and speak to the people involved in their previous acquisitions. Is it important that the buyer continues to provide an excellent service to your customers and look after your staff? If so, find out how post-merger implementation has worked out in their other deals.
Never close the buyer down without question, Paul says. Before moving the conversation on, you need a good indication of what the business is worth in the current market. Does the offer exceed a value you envisaged in your exit strategy? Seek professional advice; whether it's an accountant, solicitor or broker, you will get your money's worth later on when you get onto agreeing the terms of the deal.
Create some competition
If you decide to engage with the buyer because the offer is a good one, always try to get at least one other buyer in the room and create a bit of competition. A broker could arrange that for you.
Paul says, "You want to avoid a situation where a buyer makes a flattering offer, gets you tied up in the process, and then the offer starts to creep backwards. That could be because either you're not prepared or theirs is the only offer on the table.
"When you accept an offer, it should be on the basis that you've decided to take this offer ahead of another offer so that if the buyer starts to row back on what was originally agreed, you can say that you have other people you can sell to. It focuses the buyer"
An approach can help crystalise your exit strategy
When a buyer first approached Nikki McReynolds' nursery business, she hadn't thought of selling imminently. But it did act as a catalyst to think about and pursue an exit. She put the letter away and didn't think about it for a couple of months before deciding to meet. "I couldn't attend the meeting without finding out what the business is worth. I spoke with one broker who shared my numbers and growth plan and gave me a valuation. I could have an open and honest conversation with the buyer, which gave me confidence that I had made some good decisions." She didn't pursue that first approach, but later on, Nikki spoke with another broker that offered 70% more than her first valuation.
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