It is common for businesses that are showing rapid growth and success to be approached with unsolicited acquisition offers. However, just because another business presents you with an acquisition offer doesn’t mean that it’s always a good offer. Therefore, it’s important for businesses to evaluate each offer carefully in order to ensure that it is in the best interest for your business before agreeing to it. Additionally, it’s also a good idea to create an intense competitive situation in order to maximize the valuation of the potential merger as well as the overall impact and future of the business. Here we will discuss how to interpret unsolicited M&A offers, how to determine if an offer is worth pursuing and how to respond to each offer.
For example, two out of three technology businesses (particularly smaller tech companies) receive at least one unsolicited acquisition offer during extreme growth phases. Because the market is currently in an active M&A cycle, many smaller businesses are receiving unsolicited M&A offers by larger companies. Here are some key pointers to take into consideration as your company receives potentially lucrative unsolicited M&A offers.
- Understand the Valuation of the Business. After receiving an unsolicited acquisition offer, the first thing an entrepreneur or business owner should do is to compare the value of the offer to the overall value of the business. Most unsolicited offers are presented at the lowest possible valuation (in a non-competitive situation, of course). This is because most acquirers know whether or not there are other offers on the table. If the acquirer knows that their offer is the only one, then it will likely be presented at the lowest value – regarding both valuation and deal terms.
- Create Backup Plans and Leave Options Open. If a business owner or entrepreneur chooses to purse an offer and begin the M&A process, then it’s important to have other backup options, particularly before entering an agreement. This is because agreements can easily fall through, especially if the terms of the agreement don’t meet the needs of the business. One strategy to mitigate this is to create compelling offers and solid backup options by running a competitive analysis.
- Run a Competitive Investment Banking Process. Once a business is approached with an unsolicited offer, the business should then work with an investment banker to seek out some likely buyers to drum up compelling and competing offers. This strategy will expand the pool of potential acquirers, ultimately creating a highly competitive situation and also increasing valuation.However, it’s important to note that the best offers require sharp positioning, tactful negotiation, and selecting the most desirable terms from each offer. The majority of businesses would not be able to increase the valuation of an unsolicited offer without a comprehensive competitive strategy in place. As mentioned above, these strategies and solid backup options optimize offers, mitigate risks, and increase the valuation of the deal.
In summary, businesses that are showing rapid and successful growth and expansion are likely to be approached with unsolicited offers. However, each and every offer should be approached and considered with the best interest of the business in mind.
Business owners, entrepreneurs, and executives should evaluate each offer carefully, assessing the terms and the value of the offer, and then run a competitive analysis to determine the overall value of the business as well as attract likely buyers that are the best fit for the business’ strategy. Businesses that take this approach when receiving unsolicited offers often result in the most successful M&A deal.
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck
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