What To Do if Someone Offers To Buy Your Business

Getting an unexpected offer to buy your business can be encouraging yet stressful at the same time. As an entrepreneur in this situation, the sale offer has to be thought over carefully and dealt with strategically. This article offers guidance on what to do if you get an unsolicited offer to buy your business.

Initial Steps to Take Upon Receiving an Offer

Here’s what to do when you get an offer from someone to buy your business out of the blue. 

Avoid Knee-jerk Reactions – Risks of Responding

Entertaining unsolicited offers to buy our business requires careful consideration, particularly regarding its impact on your company’s enterprise value. Here’s why a strategic approach is essential:

• • Market Perception: Engaging with these offers can signal to the market that your business is up for sale, potentially affecting your company’s perceived stability and value.

• • Employee Morale: Uncertainty about the company’s future can impact employee morale and retention, directly affecting operational efficiency and value.

• • Strategic Distraction: Focusing on unsolicited offers can divert attention from core business growth and strategic objectives, potentially diminishing your company’s attractiveness and value to future buyers.

Any response to an unsolicited offer should be aligned with your long term business strategy and value preservation goals. Taking a measured approach and working with M&A advisors to build a strategy in response to the offer will help you get the best possible outcome in terms of your goals.

Verify Offer Legitimacy

Conduct an in-depth investigation of the source of the offer by performing a background check, seeking advice from business sale professionals, and making an effort to understand the red flags to look out for when presented within the offer.

It sounds simple, but a thorough Google search about the person or business who has made the offer can reveal a lot. Do they have a legitimate business? Do they have an active LinkedIn profile? Do they have an online footprint that you can investigate? Do your research first and you’ll avoid any nasty surprises.

Gauging Real Interest – Letter of Intent or Purchase Offer

It’s normal practice as part of the acquisition process, for the interested party to provide you with a letter of intent (LOI) or purchase offer. If you have received an unsolicited offer via some other method – for example, a phone call – you or your advisor would ask the acquirer to submit a letter of intent or purchase offer if you’re interested in finding out more.

This LOI or purchase offer document is an outline of the proposed acquisition terms and is not a legally binding agreement. Typically, it will include information about the proposed sale price, conditions of the sale (which may include transfer of IP, licenses, transfer of contracts and conditions relating to employees), principles and terms of a possible agreement. It is essentially a precursor negotiation starting point to a formal acquisition agreement. The LOI or purchase offers a good basis for you to conduct due diligence before you commit to the next phase of the sales process.

Consult with Advisors

Once you know it’s a genuine offer, it’s worth consulting with legal and financial experts. Engage an M&A expert and you’ll get help from seasoned pros who understand how to navigate selling a business. Naturally, your buyer will want to get the best deal possible – but you don’t want to walk away feeling undercut. Sell-side advisors can help you navigate the valuation process, the vetting process, the negotiation process, and help you make strategic decisions including helping you determine if you should run a full market process in parallel.

Assess Goals

When evaluating business sales offers, try to understand the buyer’s motive and see that their vision aligns with your long-term goals of the company. If you do want to sell the business, do you want a role within the company after the sale? Are you concerned about the future of the company? Or is your main goal simply to receive a premium purchase price? It’s important to understand your personal goals before making a decision.

Confidentiality Measures

If you do hire a business sales expert, they can help you streamline the legal side of any sale. Before you even begin the conversation, you’ll want confidentiality agreements in place. You’ll have to disclose figures like revenue, costs and profit and you won’t want these numbers in the public realm too soon.

Decision-Making

The next step to making a decision is to ask the meaningful questions: 

Questions to Ask the Potential Buyer

• • Intentions and Motivations:
    • • What motivates your desire to purchase our company?
    • • Do you have strategic investment, portfolio growth, or any other operational goals in mind?

• • Financial Capability:
    • • Would you provide a description of your financial means for this purchase?
    • • How will you finance the acquisition?

• • Post-Purchase Vision:
    • • How do you see our business in five years under your leadership?
    • • Are there any plans to make operational, management, and cultural changes?

• • Integration and Transition:
    • • What are the strategies you have in place to ensure seamless integration of our business into your operations?
    • • What human resources are you planning to keep or reform?

Evaluating the Offer

Once you have everything to hand and have done your due diligence, it’s time to evaluate the offer. First of all, you’ll need to decide if this is a fair offer, a high offer, or a low offer. Obviously, everyone wants to get the most out of the sale of the business, so it’s worth doing some calculations to understand how much your business is worth in the current market. This allows you to compare the two figures to see where the offer lies. The most common approach (although certainly not the only) is to compare the offer with what similar companies in the industry have sold for in the recent past. The most used comparative metric is the EBITDA multiple paid for these similar companies. This approach is very nuanced so it is best to consult an M&A expert for access to data and general guidance.  

If you are happy with the offer in comparison to what you deem your business to be worth, then the next step would be understanding if the buyers are the correct people to take over the business long term.

Understanding the Impact on Your Business

Selling a business is more than money; it can be an incredibly personal life event. Afterall, you might have spent the best part of a decade building the business, so you will have emotional ties. Make sure to take into account the below:

1. Employee & Stakeholder Communication

Honesty should be a top priority because employees and stakeholders will be affected by the business being sold.

2. Business Legacy

In selling, think about how the new owners are going to protect and maybe even expand the business. Understanding their vision of the business assures that the transition follows the values and principles on which your company was founded.

3. Values & Long-Term Well-being

Alignment with Values: Make sure that the decision is consistent with your ethics and moral values. Think about the compatibility of values with yours in such areas as corporate responsibility and employees’ welfare.

Negotiating Terms & Conditions

Negotiation is an art, and you’ll need to be able to negotiate certain terms well in order to get the best possible terms for yourself. Work closely with your advisors to:

• • Make the purchase price negotiable so that it will be representative of your business’s true value.

• • Discuss and modify tailor the deal structure to suit your financial objectives.

• • Make sure to incorporate clauses that safeguard your business legacy by having a contractual agreement with any desired clauses present. For example, do you want to remain on the board? Think about all of the possibilities for your future and share them with your advisors – they’ll likely be able to make it work for you.

FAQs

What are the key questions to ask when someone wants to buy your business?

The most important questions should be about determining the buyer’s motivation and financial capability as well as their specific plans for business after purchase.

How should I respond to an unsolicited offer to buy my business?

Check the authenticity of the offer, consult law and financial experts as well as perform a comprehensive assessment before replying.

What factors should I consider before selling my business?

Factors to consider include the bidding price, payment terms, effect on workers, and how a buyer intends to operate in later years. You should also read our post on Navigating the M&A Process to help you understand the M&A sell side process.

Disclosure

The above information may not be representative of the experience of other customers and past performance is not a guarantee of future performance or success.

This article is for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Principals of Objective Capital are Registered Representatives of BA Securities. Objective Capital Partners and BA Securities are separate and unaffiliated entities.