Every sell side advisor has had the same experience, the moment a business owner contacts them with a desperate plea for help, due to a deal falling apart. The scenario always tends to be the same, a seemingly credible buyer writes to them promising a speedy cash acquisition of their company, only to be met with delay, frustration, obfuscation and wasted legal fees.

On face value an off-market approach could appear as a “blue bird”, however it’s often wise to treat any approaches to buy your business with a healthy degree of scepticism. Especially when selling your life’s work for the right valuation will inevitably be a life changing event.

Verify First, Trust Later

If you are not actively seeking a sale you should be wary of anyone approaching you ‘cold’ to buy your business. Regardless of how enthusiastic they appear and quality of their approach, you should always verify that the individual in question is credible, their reason to buy your business makes sense and they are capable of following through on an acquisition.

In one example, a business owner was approached by an overseas investor; conversations flowed effortlessly and proof of funding arrived on bank letterhead paper. After several months of delay and frustration the owner was warned by a concerned individual, that the buyer wasn’t who he claimed to be. The Police were notified and indeed the attempt to purchase the company was fraudulent (the bank letterhead was a forgery).

Vetting any/all potential buyers thoroughly is a must. The EvolutionCBS deal team has decades of experience, undertaking intensive desk research in several continents and carrying out pre-qualification before a buyer gets too close to our clients. In this way we prevent scenarios where both your time and money may be wasted by any unsuitable candidates.

Follow the money

Funding is often a challenge when it comes to buying and selling businesses. We are currently blessed with a variety of online resources to scrutinise an individuals’/companies’ funding capabilities. You should use public domain resources, such as Companies House to review the filings an acquirer has posted and to identify related parent companies or persons with significant control.

If you simply take someone at face value, there is a danger that they will ultimately not be able to proceed with their offer due to a lack of funds. Being able to look at their balance sheet, previously completed acquisitions and the substance of their directors/related companies can reassure you of their capability to acquire.

Too often when approached by an individual or company the “too good to be true” effect means that we tend to throw out common sense. No matter how attractive the offer, always follow the money to ensure the buyer has the ‘firepower’ to complete on the deal.

One Buyer = No Buyer

It’s not unusual for business owners to be stressed with the day-to-day challenges of running their company. An offer to buy your business that appears out of nowhere could be a tempting proposition and a means of escape from the ‘hamster wheel’.

However, decision-making when stressed, underprepared and with limited options will lead to a weak negotiating position and ultimately a less than favourable valuation of your business. Desperation never results in an optimised valuation and indeed will lead you to compromises you should never make.

A sell side advisor worth their salt will take measures to ensure you have a choice of buyer and a number of offers on the table. Ideally, the advisor will want to create a competitive environment around the sale, by proactively seeking out the best possible buyers for your business, entering into confidential discussions, and inviting offers with only the most appropriate acquirers.

“Choice of buyer/offer” is a key part of the EvolutionCBS sale process. Especially given that sellers who are surprised by an unexpected buyer essentially have no plan B and limited room to manoeuvre. Ultimately if the surprise buyer does waste time, then it’s back to square one, whereas a proper process delivering a choice of acquirer puts you in the proverbial driving seat.

Protect your reputation

An off-market approach will make you vulnerable in ways you least expect. The moment you respond to the interested party, the knowledge that you want to sell your business will be out in the marketplace. What’s the harm you might ask?

It is crucial when embarking on a sale to ensure that your staff, customers and suppliers are informed by only you at the most appropriate moment, and with a carefully considered statement. Any rumour mill that might reach them could be seriously damaging, not just to your trading, but also your reputation as people are quick to misunderstand your situation/motives.

The ideal sale is one that where all interested parties do not get wind of your intention to sell until they have signed a Non-Disclosure Agreement (NDA), which protects your confidentiality and restricts any direct approaches to staff, customers or suppliers.

In one nightmare example, the potential buyer had received the entire customer list and had secretly approached key staff without challenge, because the unadvised seller had acted on trust rather than insisting on a confidentiality agreement. The moral of the story is to always protect yourself and the business by insisting on confidentiality.

Seek the right professional advice

From the initial idea of the sale, through to marketing the business and eventually negotiating/completing on a deal, having the right advice will protect your best interests at every stage.

Selling a business is fraught with stress and difficulty, so having the right team alongside you will ensure that you are guided away from any pitfalls and saved from unwitting errors. Especially when selling your life’s work, experience will count more than enthusiasm.

Getting good advice early on will also mean you are not on the back foot when approached by an acquirer. It is the most proactive step you can take to protect your future wealth and to maximise the valuation of your company. It will also protect your staff by ensuring an orderly, managed sale process that always considers the best outcome for your company – “preparation is everything” is the often-quoted mantra of our Managing Director, Mike Whittle.

The team around your table must include a sell side advisory firm and an M&A Specialist lawyer:

Sell side advisors (not brokers) will adopt a proactive stance and ensure your best interests are met at every stage. They typically will help you with the exit planning’, the marketing of the business for sale, undertake all negotiations for sale and provide guidance once lawyers become involved in the final stages of due diligence.

Experienced M&A Specialist lawyers add value at multiple points and are necessary for various stages of the sale process. For the vendors, your lawyer becomes a white knight, protecting you and your business throughout the deal, and tackling tricky issues on a point-by-point basis. Importantly they manage critical Due Diligence deal integrity and also draft the Sale and Purchase Agreement (SPA).

You may also require specialist tax advice and/or input from Wealth Managers, to assist your longer-team planning and to mitigate any tax liabilities resulting from the sale.

Conclusion

Cold approaches and off market offers to buy your business, that seem too good to be true, often lead to wasted time, legal fees, and potentially even fraud.  Getting good advice early on is the most proactive step you can take to protect your future wealth and to maximise the valuation of your company.

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