What to do when approached to sell your business

Our overriding advice is this: The single most influential factor over saleability and price is the creation of a market of strategically motivated, financially strong buyers. Whatever you do, don’t compromise this. Don’t ever enter a negotiation without alternatives. Having alternatives is essential and could be worth millions to you.

Being approached by someone wanting to buy your business may be irresistibly attractive, whether expected or not. An unsolicited offer could come from an industry player, private equity firm, a friend or even a competitor.

The attraction of a one-on-one process promises to be simpler, faster, less stressful and more confidential. However, you should resist the temptation to deal exclusively, and carefully consider all the ingredients of a successful transaction before committing to go one-on-one.

Many clients test their network to see if there is any interest and often engage advisors with one or more buyers already in tow. Sourcing a potential buyer is important, but a higher priority is to ensure you attract the most suitable buyer on favourable terms and have a capable team to manage the process alongside you.

You may have owned the business for many years, even decades. The best possible sale process should ensure you are set up for the optimal outcome and adequately rewarded by potentially adding hundreds of thousands or even millions of dollars to your overall sale outcome.

Which buyer will place the highest value on my business?

  • Every buyer values each business differently according to their resources, appetite, investment criteria and how well the business fits with their business or their future strategies.
  • Without a range of strategic buyers, you are unlikely to fully capitalise on your business’ value drivers to achieve the best outcome.

Does the process position me with sufficient leverage?

  • A one-on-one process usually favours the buyer as the buyers have alternatives. Without competition and choices, the seller may be disadvantaged.
  • Owners often waste months and even years on these one-on-one processes before abandoning them.
  • The positive pressure of a competitive process with multiple strategically focused, committed buyers is the best way to ensure all buyers stay focussed, put their best foot forward and drive the price higher.
  • Effective targeted marketing can generate many interested parties while maintaining confidentiality.

Do I have the experience to manage an intense negotiation and sale process?

  • Most business owners don’t know what they don’t know about selling a business.
  • Buyers are often much more experienced at buying and selling businesses than the seller.
  • Your advisory team must be able to match the skills and experience of the buyer’s team to avoid being exploited by the many intricacies and highly technical elements that a transaction comprises.
  • Experienced advisors understand tactics buyers use to achieve a better outcome for themselves and can pre-empt issues and offer solutions to maintain control of the process.
  • Negotiating can be time consuming, emotional and become personal. M&A advisors provide stability and momentum, acting as a cushion or circuit breaker between buyer and seller to keep the process on track.
  • Most seasoned buyers will welcome the involvement of capable M&A advisors on the sell side to support the business owner through the transaction, as this makes the whole process smoother.

Do my existing advisors have the expertise to optimise every aspect of the sale process?

  • You wouldn’t rely only on a GP to handle a serious medical issue; you would insist on a specialist who knows specifically about your issue. That way you know you’ll get the best outcome. Selling your business is no different!
  • The cost of an M&A advisor is minor in comparison with the potential upside to the sale outcome.
  • Your preferred advisory team should have completed hundreds of transactions over many years, accumulating vast experience and knowledge to apply to your process and provide optimal solutions to every situation and issue. A GP legal, accounting or financial advisor cannot hope to bring the same expertise to the process.

Recommended steps when approached

Regardless of whether you are running with one or many buyers, these preliminary steps are critical:

  • Let the target buyer know you are seeking professional advice to help prepare for and facilitate the process, and to await further contact – this tells them you are serious and that you want to do it properly.
  • Engage a firm of M&A professionals to:
  • Analyse your business to determine the strengths, financial and operational performance and opportunities for your business.
  • Prepare an Information Memorandum and normalised financials as though you are going to the broader market.
  • Analyse working capital for extracting and realising excess assets from the business before the sale.
  • Provide a price guidance and confirm it meets your expectation and requirements.
  • Prepare and manage confidentiality and contingency plans throughout all stages of a process.
  • Obtain specialist tax advice for larger, potentially more complex transactions to assess the business structure and tax profile to minimise the tax leakage from the transaction.
  • If still preferring to explore going one-on-one, assisted by the M&A advisor, you should commence the negotiation with both parties knowing that you have the option to revert to the wider market if they slow up or low-ball their offer.
  • If the targeted buyer agrees to a fair price and other conditions, you may elect not to go to the broader market but retain the leverage to do so if the process loses momentum.
  • Exercise great care and discretion when sharing sensitive information about your business by not giving too much or too little information at each stage including due diligence.

Still not sure? Don’t take our word for it. Here is feedback from former sellers and buyers

“…… As a business owner operator, if you believe that you fully understand the process of selling your business, you are in for a surprise. You do need the guidance and experience of someone like (DMA)…”

“…The purchase of a large-scale business can be a stressful exercise. We found (DMA’s) skills of mediation to be critical in what became a relatively smooth transaction. It is fair to say that as purchasers we may not have proceeded without (DMA’s) help & advice. We are ecstatic with the outcome…”

“… Overall a very professional and helpful service, particularly when the best interests of the vendor and the purchaser were in direct conflict…”

“(DMA’s) involvement from a purchaser’s viewpoint was the difference between a successful outcome or otherwise. Their response to queries and requests for information was outstanding. (DMA) is an excellent organisation and I would have no hesitation in recommending them to any prospective clients.”

“…There were times that we experienced frustration and angst either through our lack of knowledge or the process itself and you were always able to guide us through the ‘moment’ and keep us focused on the optimal outcome…”

“…I am sure that had the two owners been communicating directly, we would not have purchased the business.  From a buyer’s point of view, detailed information supplied, and your honest upfront approach was excellent…”

Posted in Sale Process.