Cashed up companies seeking to expand, will often court smaller players in the market. If you are one of these smaller players, once you get past the flattery of a larger company thinking you may be a suitable acquisition, how do you react when approached?
Here are some mistakes to avoid
1) Rushing to a Terms Sheet
Before you rush to sign a Terms Sheet and/or give the buyer exclusivity, sit back and think what you want to achieve, what your business is worth and if you really want to sell it who else should be approached.
The lack of competitive tension with only one buyer from a direct approach often results in long delayed deals which progressively get less attractive for the vendor.
If the approach convinces you that it is time to sell, do it properly.
2) Trying to do it yourself
Unless you are an expert in buying and selling a business, please surround yourself with advisers who are experts, because the other side certainly has. Make sure that each of your corporate adviser, lawyer and accountant has been battle hardened on similar deals. You have spent too much time and effort building a company to let amateurs mess things up.
These advisers talk the same language as the buyers advisers and can assist you in identifying key issues to be addressed, suggest alternative and shield you from excessive intrusion and traps. The can also act as the designated bad guy if necessary.
If you decide to sell, do it properly.
3) Rushing into due diligence
The acquiring company has probably made numerous acquisitions before and has developed a thorough due diligence plan to investigate opportunities.
Chances are that they will give you a completely over the top and generic list of information requests with often irrelevant information requests. Do not play that game. Before you engage in discussion on due diligence put your own files together of the information that a diligent and reasonable acquirer would need to become comfortable with the business.
Again, having competitive tension and well prepared due diligence files will ensure that momentum will continue with a deal and help you avoid stale deal syndrome.
4) Unrealistic expectations
Just because someone approached you doesn’t necessarily mean that they will pay an exorbitant price for your business. Perhaps they will pay a high price, but don’t kid yourself. If you play excessively hard to get, you might be left on the shelf during an industry rationalisation process and, in time, become largely irrelevant.
5) Burning bridges
If you are not currently interested in being acquired or you cannot agree on a deal, do not burn bridges as they may come back later and want to revisit the opportunity. I once sold a business to a group that made 4 or 5 approaches to acquire my clients business over 15 years.
Regardless of your objectives and the outcome, use an approach from an acquirer as a way of crystalising your plan for the ownership of the business, getting your house in order and seeing how the market values your business.
Thanks to Peter Wallace of Endeavour Capital,Sydney for permission to republish this blog.