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Dealing with an Unsolicited Offer

Any successful business owner who has been in business long enough has likely experienced the “unsolicited offer” for his/her business. Such an offer typically comes in one of several ways, from one of several types of groups. There are two types of unsolicited offers, typically originating from one of three types of buyer groups. First, we will take a look at the various types of unsolicited offers. Next, we will analyze the various groups from where such offers most typically derive. Finally, we will discuss key strategies in dealing with unsolicited offerings for the sale, merger or acquisition of a privately-held business.

Serious Offer vs. Clever Marketing 

In many cases, a promise of an offer can come from one of several forms of marketing communication. It can come via phone (likely with some underling using a call script), email and even fax (yes, it still happens). The typical premise of such communication is this, “we have a buyer interested in your business. If you are interested in selling, please get in touch with ____________.” In some such cases, a real buyer may be present or behind the curtain of some engagement agreement. In fact, some may be paying a broker an outsourced buy-side M&A advisor, using the advisor as a third-party outsourced deal-sourcing agent. Both financial and strategic buyers often do this as a means of soliciting off-market deals and not-for-sale companies. We will discuss the importance and danger to a seller of such a strategy, but offers from unsolicited buyers are either direct-to-principal transactions or operating through a broker. In the cases where the broker is using the “we have a buyer in tow” as a front, the seller should be able to see through any clever Jedi mind tricks. Seller’s might ask:

  • Who is your buyer?
  • What is your buyer’s investment mandate?
  • Why did you choose my company?
  • What do you know about my industry? (if they have actually done their research, they should be able to tell you a thing or two about the company)



Such questions can help to filter the wheat from the chaff when it comes to real buyers. If, after an NDA and/or non-circumvent agreement, a broker makes an introduction to a real principal, institutional investor or strategic buyer, then such a buyer will likely wish to move down the path toward a more serious offer. In such cases, all unsolicited offerors will have a heavy incentive to keep the process private and untouched from other brokers and buyers. They will want to maximize their own value by cutting out potential demand on the deal. Economics 101: price is dictated by demand. Non-existent demand guarantees a lower price for a would-be buyer.

Broker, Financial and Strategic Buyers 

Types of unsolicited solicitors can usually be placed into one of three buckets. The first and most likely perpetrator of at least the initial unsolicited offer is the investment banker or business broker. In many cases, this individual is likely on some type of fishing or hunting expedition, hoping to see what might stick. However, in some cases, the broker may be operating under a buy-side initiative from either a private equity group or strategic buyer. Strategic buyers can more notorious for hiring outside advisory assistance for acquisitions. Doing so keeps them one step removed from giving away their position to the would-be seller. Financial buyers often act the same way, but generalist firms typically have less of an confidentiality incentive for doing so.

Alternatively, a potential company seller may receive a direct M&A offer from a private equity group, family office or strategic buyer within the same or ancillary industry. When such an offer occurs, sellers should be flattered, but always aware that the first offer is almost never the best.

Red Flags from Unsolicited Offers 

Receiving general information about or from an interested buyer is one thing, moving forward in discussions on a Letter of Intent or Stock Purchase Agreement is quite another. Sellers who settle for the unsolicited offer typically do not maximize the value of the business at the closing table. While it is true that such situations are often easier and less stressful (dealing with multiple buyers, less stringent due diligence, etc.) than a full-blown M&A auction, significant value is lost when a seller decides to go with the first or only offer. In some cases, a seller that engages directly with a principal buyer or the buyer’s representative without representation internally can result in more difficulty than the seller may anticipate.

Prepared sellers that may have already engaged with an investment banker or M&A advisor have likely undergone some preliminary due diligence in preparation for the Confidential Information Memorandum (CIM) or pitchbook. This disciplined process readily helps sellers prepare for the much more more stringent, full-blown due diligence exacted by buyers and their representatives. If a seller opts to go with the first offer from an unsolicited source and feels that due diligence is easy, there should be cause for concern: light due diligence could mean the buyer is comfortable with more skeletons in the closet because the value offered for the business is significantly below fair market. It is almost always true that the more a buyer is willing to offer for a business, the more critical the buyer will be on all items relating to due diligence.

Maximizing the value of your business in M&A requires a stringent focus on process and negotiations. Company owners who may receive that unsolicited offer may feel this is the one and only shot at exiting the business. With the amount of dry powder on private equity and strategic buyer balance sheets today, this is simply not true. There is almost always a potentially better offer in the sale of one’s business. Unsolicited offers are flattering. It is wise to take note from where the offer originates, including the contact information of the individual making the offer. A friendly response to such an offer can keep the door open to future opportunities perhaps when the timing is right for the business and its shareholders. In the case where the timing is right and more than one unsolicited offer has been recently or historically received, then is the time to fully engage an investment bank to run a process that will truly extract seller value.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
  • As a buyer of businesses, I think unless a buyer sees something in an acquisition that the owner does not (unlikely), it is in most cases a bad idea to actually offer an unsolicited offer (public companies may be an exception) on a private business.

    What I mean is that for one, I would rather deal with someone who has already made the decision to sell as they will often have more motivation compared to someone taking an unsolicited offer. That motivation may lead to a better deal being struck.

    Secondly, with rare exceptions in private business, the buyer will ALWAYS know less about the business than the seller from an internal standpoint. This adds a tremendous amount of risk to a deal, risk I for one, do not take. The rare exceptions for this are through networking, where someone you know, knows someone who has been “Thinking” about selling. As these relationships are typically either very personal or professional, the person referring typically knows a great deal about the business.

    • Nate Nead

      Thank you for your comment Logan. I should probably have been more clear on what an unsolicited offer means. It could include a basic, initial outreach from the first introduction (which, as you rightly state is rare and unlikely), or it could include an offer based more on a relationship that has been developed over the long term. If the buyer were comfortable with information gaps and the seller were primed and ready, the offer typically when all parties know something is likely to “go down.” Never good to ask someone to marry you, if the probability of a “no” is imminent.

  • Gabriel Galvez

    Nate,

    Great post. I was recently traveling with a business owner who is going through this. I think one key take away is an understanding of not just value, but process. He, for example, simplly thought that since there was no ‘shopping’ he didnt need a banker and could reply on his corp attorney only to find that they shared way to much information too early on before even signing an LOI! Dont make this mistake people!

    • Nate Nead

      Thank you for your comments Gabriel.

      I regularly harp on the prices charged by residential real estate agents: the rates are steep for the amount of incremental value that is supplied. However, there is value in hiring and engaging with someone that performs the process for a living. But the fees are negotiable and should be dependent for the total amount of incremental value provided. The same could be said of investment bankers.

      In your example, the seller thought they could “go maverick” on the deal, but paying a smaller, less lucrative success fee to an investment banker (because s/he is doing less work) can be a fail-safe insurance policy for items that ultimately protect both the seller and the seller’s business as a going concern. Point taken!

  • Shekar Kupperi

    Nate, This is an excellent article – absolutely well written. This is very very true here in India too. More importantly, I am in total sync with your statement ‘A friendly response to such an offer can keep the door open
    to future opportunities perhaps when the timing is right for the business and
    its shareholders. In the case where the timing is right and more than one
    unsolicited offer has been recently or historically received, then is the time
    to fully engage an investment bank to run a process that will truly extract
    seller value.’ This was precisely my experience with one of the transaction we concluded last year, and has been the case with at least couple of cases this year! Best Shekar Kupperi

    • Nate Nead

      The old adage truly holds here that it’s best not to burn a bridge that you may need to cross later. Thank you for your comment.

  • Hi Nate, Certainly this article should make any CEO think twice before jumping on the first and unsolicited offer. As you referenced, ego may play a part that undermines true market value. The point about a buyer ignoring possible skeletons in the closet (reverse due diligence) because they’ve an umbrella over such losses compensated by a lower market value should raise red flags to any CEO. CEO’s should never wait for such offers before regularly and routinely cleaning house. Solid process flows, sound internal controls, thorough documentation and application of COSO 2013/GRC should ensure an ongoing efficient and effective infra-structure with no closets. Both CFO’s and CEO’s effectively take an oath of fiduciary responsibilities and yet lack of transparencies, inefficiencies and targeting personal EoY bonuses seem to be the norm. Such typical corporate environments can easily lead to under-pricing a fundamentally sound company instead of being on solid-ground and counter-arguing that clearly this company is worth ‘x’ because of….and perhaps by truly knowing its value and growth potential they simply respond ‘not-for-sale’.

    • Nate Nead

      You nailed it Peter. The primary issue is under-valuation. Buyers looking for a good ‘off market’ deal are going to pay top dollar. A knowledgeable third party is crucial here.

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