We often get the phone call where a business owner calls us with the following question, “I just received a call from a competitor who wants to buy my business, what should I do?”
Our first question to them is, “Are you planning on selling your company?” Depending on the answer, “yes” or “no”, we normally give the following advice:
“No, but I may want to sell my business in the future.”
In this case, you should thank them for the call and ask them why they called you. Often times you may learn some good information about your competitor, such as:
How are they owned?
Are they owned by family, an ESOP, Private Equity, Management, a large corporation, an international firm, a foreign entity, etc.? They may also give you some additional insight into the history of the company.
Why do they feel you would be a good fit?
This could provide you with quite a bit of information about their strategy for growth in the Industry as well as their plans for buying your business.
Can they afford to buy your business?
If so, what do they base the purchase price on? What multiples do they normally pay? Where is the financing coming from and do they expect you to provide part of the financing? Obviously, you do not want to work with a Buyer that cannot afford to grow the business, let alone pay you a fair price, or provide the cash you will need at closing.
What are their plans for your employees?
You may want to ask about pay, benefits and opportunities for advancement. This may give you some peace of mind if you decide, at a later date, that they would be a good Buyer for your business.
Have they ever made an acquisition?
If so, can you talk to one of the sellers about the process? You may gain quite a bit of information talking to someone the competitor has already purchased. Caution- when you talk to an Industry insider your tendency will be to quickly form a common bond and inadvertently give out too much information. You will want to focus on information gathering in this initial conversation.
If you decide to go much deeper than this round of questions you will probably need to sign a confidentiality agreement. At a minimum, ensure in your discussions with the prospective Buyer you point out all information you discuss must be treated as confidential. If you decide to go ahead with a discussion, make sure that you have a mutual confidentiality agreement and your legal counsel has reviewed the agreement. You should not give out any confidential information without a signed legal agreement protecting you and your company.
“Yes, I would sell my business.”
If you are ready to sell your company, I would suggest you hire an experienced M&A advisor to represent you. Your M&A advisor will know what questions to ask to get the answers you need.
The following is an example of a real life transaction:
A company came to us when a competitor contacted them with an unsolicited offer to buy their business. The President and CFO felt that the initial offer in the mid $20 million range was intriguing enough to consider, but wanted a professional to review it to make sure they were getting maximum value. They hired Quazar Capital to represent them through the process, looking to protect their interests and maximize value for the shareholders. Quazar negotiated, on behalf of the shareholders, a premium for their business which was ultimately sold in the mid $30 million range.
The moral of the story, a good M&A advisor will more than pay for themselves by getting you a premium for your business.
It’s never too early to start planning for an exit strategy.
You can always contact Quazar for a confidential, no-cost analysis of how the Market would treat your unique situation.