Receiving an unsolicited offer to buy your business can be both exhilarating and overwhelming. For many lower middle market business owners, the idea of a potential sale stirs a range of emotions, from excitement about future possibilities and validation of their success, to anxiety about leaving behind the business they’ve nurtured over the years. Marc Weintraub, an experienced M&A attorney at Stinson LLP, recently shared these valuable insights with us into effectively managing unexpected offers the right way.
Taking the First Step: Managing Emotions and Asking Questions
Marc emphasizes that the first and most critical step upon receiving an unsolicited offer is simple but crucial: “Take a deep breath.” Emotional reactions, whether enthusiasm or fear, can cloud judgment, causing owners to make impulsive decisions that may not serve their long-term interests. Instead, Marc advises owners to calmly assess the offer by asking two fundamental questions: “Why are they interested in my business?” and “How did they arrive at this price?” These queries can reveal the buyer’s motivations and provide insights into the valuation methodology used, ultimately giving you better leverage in negotiations.
Assemble Your Team of Advisors Early
One of the most common mistakes Marc sees is business owners accepting offers and attempting to conduct complex transactions without appropriate guidance. Assembling a robust advisory team, including a financial advisor, CPA, M&A attorney, and especially an investment banker, is vital. Marc suggests your first call should typically be to your financial advisor to clarify personal financial goals and how the proceeds from the sale might align with your broader life objectives.
Once clear on your personal objectives, it’s important to engage an investment banker that can guide you through the process. As your advisor, an investment banker provides critical market insights, helps enhance the offer through competitive analysis, and manages the negotiation process to maximize the sale value. They typically have a broad network of buyers, and this reach can be helpful to maximize the value of your offer as well as improve your offer terms. Marc highlights a recent example where a business owner increased their unsolicited offer by 33% after involving an investment banker – proof that professional guidance significantly strengthens negotiating positions.
Protecting Confidentiality and Understanding the True Value
Before sharing sensitive business information with a potential buyer, Marc stresses obtaining a well-drafted non-disclosure agreement (NDA) from legal counsel. This safeguards your confidentiality and prevents the premature disclosure of the deal, protecting your business and employee morale.
Moreover, understanding the true value of an offer goes beyond the headline price. Owners should closely examine the purchase price structure, including cash at closing, rollover equity, and earn-outs, and understand terms related to their ongoing involvement post-sale as well as the intangibles like a prospective partner’s commitment to your employees and company culture. Non-compete agreements are also pivotal, as they impact your professional future significantly.
Bridging Valuation Gaps and Avoiding Red Flags
Marc notes that initial unsolicited offers rarely perfectly align with a seller’s valuation expectations. Typically, these initial figures are subject to renegotiation following diligence processes. Owners can bridge valuation gaps by relying on their advisory team’s comprehensive market understanding and strategic negotiation skills.
Additionally, Marc shared a cautionary example of a seemingly promising unsolicited offer that quickly revealed multiple red flags, including an undervalued initial proposal and unclear buyer intentions. By engaging advisors early, the owner was able to pivot and secure a substantially better offer from a different buyer.
Emotional Readiness and Proactive Preparation
Selling a business is as much an emotional transition as it is financial. Marc recommends that owners consider consulting a psychologist or trusted confidant to help prepare emotionally for the sale and life afterward. This psychological preparation is often overlooked but can significantly smooth the transition and help ensure post-sale satisfaction.
Proactively, Marc advises owners who aren’t immediately considering selling to maintain readiness by regularly consulting with their financial advisors, accountants, and attorneys, establishing relationships with reputable investment banks, and continually enhancing the value of their business and brand. The sooner you begin preparing for your eventual exit, the smoother the process will be.
The Critical Takeaway
Marc’s most important takeaway for business owners receiving unsolicited offers is clear: “Pause, control your emotions, and immediately engage your trusted advisory team.” Doing so ensures informed decision-making and positions you to optimize the value and terms of the transaction.
If you find yourself fielding an unsolicited offer, Marc Weintraub and the team at Stinson LLP are ready to provide expert legal guidance. They offer strategic support in assembling advisory teams, managing NDAs, and ensuring the process is handled with utmost professionalism and discretion. Additionally, our team at Align is ready to assist you with a complimentary valuation, competitive analysis, and more, ensuring you’re empowered to accept the best offer – not just the first offer – for your business.