“The biggest human temptation is...to settle for too little.” - Thomas Merton
It’s 6 a.m. Monday morning, and your fax machine suddenly hums to life for the first time in 8 months. Three letters spill out. “I’ve got a buyer for your business . . . A multibillion dollar company has asked me to contact you . . . You need to call me immediately – I want to buy your business . . .” Nearly every business owner has encountered some form of this, either via fax, phone or email. But, is this a legitimate buyer, or a scam? It could be either—both are in the market right now.
For economic reasons, there are an unprecedented number of real, active buyers in the market today. Financial buyers have $490 billion of funds available, and U.S. corporations have $2 trillion of cash on their balance sheets. Both financial and strategic buyers are very active and are looking for good solid companies to acquire. This phenomenon is compounded by the reduced number of sellers available. This supply and demand pressure has created a very strong seller’s market.
Is the inquiry you received legitimate?
There are a number of different types of buyers in the market today. They are as follows:
- Private Equity Buyer (or Family Office). This is a professional investor(s) with, most likely, knowledge of your industry who is looking to make an investment. This buyer has the resources, expertise, and experience to consummate a deal.
- Individual Investor. There are a number of smart, experienced, well-heeled investors looking for their next business to purchase, grow, and sell. Their ability to close a deal will depend on the depth of their resources, their team, and experience.
- Investment Banker. The investment banker will be a hired intermediary looking for a specific business, as specified by their client – usually a corporate buyer. You have been targeted because your company fits their ideal profile. The corporate buyer has already been vetted as to their ability to consummate a transaction.
- Strategic Buyer. This is possibly a competitor or a corporate buyer from a complementary industry. Their ability to purchase your company depends on the combined strength of their company, outside resources they can access, and their underlying motivation to complete the transaction.
- Intermediary Fishing for Deals. This is some type of intermediary who has no client but is fishing for one: you. He piques your interest and hopes to gain your trust in order to represent you on the sale after his buyer never pans out.
“A new, almost billion dollar buyer, has insisted we keep contacting you…”
How can you be sure you’re dealing with a buyer who’s genuinely interested in your business?
- The first indicator is the method of contact. Be suspicious of anyone who contacts you in a non-confidential manner. A fax which arrives via a general office number is not confidential. A legitimate buyer knows and respects the gravity of this type of decision.
- The second indictor is a letter, fax, or email that contains multiple spelling errors, poor grammar, or no letterhead. This suggests the offer is not coming from a legitimate source.
- Finally, a phone call will be definitive. A legitimate buyer or buyer’s agent should do three things on that initial call:
- Tell you exactly who the buyer is, what they are looking to accomplish, and refer you to a website where you can research that buyer.
- Tell you who they are and how you can reach them, and refer you to their website so you can research who they are.
- Once they have disclosed the purpose for the call, they should allow you a reasonable amount of time to research and decide if you would like to further the discussion. There should never be any pressure to make a decision on the spot, or reveal in-depth company information on that call.
Once you’ve determined that the buyer is legitimate, what are your options? We have had a number of Schenck clients in this position over the last year and approaches vary.
- Negotiate with the single buyer. We have helped clients by representing them in the negotiation process with the single buyer. We apply market modeling valuation software (Schenck M&A Business Assessment), which provides value ranges given current market conditions. It is possible to get your best price from a buyer who wants to pre-empt the market process, by putting out an early aggressive price. We oversee the process to help recognize that pricing, and verify that structure and process integrity are maintained.
- Reach out to other potential buyers. We can also serve in the capacity of bringing additional buyers to the table. We use a modified auction environment, to encourage buyers to bid a bit more aggressively than they might otherwise.
- Create an auction environment. Finally, to secure maximum value, we have initiated a full confidential controlled auction process, keeping that preemptive buyer engaged, but in full competition with the rest of the market.
These options vary in cost, speed, confidentiality, and value recognized, and not every option is appropriate for your situation. An experienced M&A advisor can assist in evaluating and deciding the best alternative for you. Contact Ann Hanna or another member of our M&A team at 888-556-5580 to learn more.
Ann Hanna, MBA, is a Managing Director of Schenck M&A Solutions. With more than twenty years of business management experience, Ann has led the sale and acquisition of many small and medium sized businesses, as well as multiple new corporate start-ups. She is also a licensed investment banker and real estate broker.
Securities offered through Burch & Company, Inc., member FINRA / SiPC Burch & Company and Schenck M&A Solutions are not affiliated entities. Ann Hanna of Schenck M&A Solutions is a registered investment banking representative with Burch & Company.