How to handle approaches from a potential buyer of your business

How to handle approaches from a potential buyer of your business

Be curious about the buyer

Asking questions of a potential buyer will help to understand the buyers’ motivations and ambitions and how you should follow up their advances. Considering these questions below will help you quickly understand if the potential buyer would be a strategic fit for your business.

Why have they approached you? Why do they believe there is a perfect fit with them? What needs do the management and the shareholders have in making an acquisition?

Have they known you for a long time or do they only recently recognise your competitive position comparative to theirs and they want to understand why? Are they approaching lots of targets or only you? Have they looked around at potential sellers for some time or have they only just started this process? How serious about acquiring are they? Do they have funding already in place?

Often the operational management will know that they have a gap in their portfolio of products or services; whereas the shareholders who may be for example, private equity, could be seeking acquisitions in order to acquire more customers or markets to sell their existing products and services. It is crucial in the early stages to understand the long-term aims and strategic fit with a potential buyer.

What information do they need to know?

At this early stage you may assume that the buyer can see what information is freely available on websites or at Companies House. Before you share further information, you should appoint professional advisors who are well versed in dealing with such approaches. Given the potential distraction of pursuing a sale process, it is helpful to assess early whether a deal may be achievable, and what would be the hurdles and challenges. A professional advisor should be able to assist with valuing your business and how the sale process could develop. Working with a trusted business advisor will ensure you are in a position to see whether this would exceed your expectations.

Pay attention at this stage to the reasons why the buyer is interested in you as that will help you to know what information you need to provide to improve your attractiveness to the buyer and so improve any offer made.

Keeping Confidentiality is critical

It is vital that confidentiality arrangements are put in place early so that information shared cannot be used to give the buyer a competitive advantage in the future if the deal does not complete. It is also important to minimise the risks of anyone else knowing about your buyer discussions. Staff or customers knowing before a deal is done can be disruptive to running your business.

Moving from Offer to Heads of Terms

Once confidentiality agreements are in place you can share more detailed financial and management information, financial forecasts and other Key Performance Indicators that would allow the buyer to make an indicative offer. Care should continue to be taken on the level of detail provided. With further presentations and negotiation, the indicative interest can be converted into the agreed Heads of Terms for a potential deal.

At that stage detailed due diligence can commence and a detailed timetable developed so that both parties understand requirements to move the deal forward. Detailed information will be shared at this stage.

After due diligence is complete, lawyers will help with the legal process. This will be comprehensive to negotiate and document all the agreed terms of the deal, to make sure all information is properly disclosed before the deal completes. Expert legal corporate advice is required to ensure that you are protected from any future issues once the deal is complete.

Ask the Experts

Unsolicited approaches may present an attractive opportunity and so should be followed up but do not risk too much distraction as it can damage your business. Managing a sales process is a difficult and time-consuming task, and external assistance is advised. Appointing advisors as early as possible will help for improved negotiations, a smoother process, as well as allowing you to keep on top of your day job.

If you have any questions around any of the above or want to discuss further, please get in touch with a member of our team or your usual Azets advisor.