Whether it’s welcome or not, many successful businesses will at some point be approached by someone looking to acquire them. Some businesses (especially those that are looking towards a transition in ownership) will anticipate this and be ready to respond. But if your business hasn’t contemplated this possibility yet, here are five questions to ask the ‘suitor’ and five questions that you and your team will want to consider early on:
Five questions for the buyer
“Why?” What is driving the potential buyer’s interest in your business: are they attracted by your technology, do you offer a broader geographic or product footprint, is it looking to acquire leadership or technical talent, or is it simply looking for revenue growth. The answer is important because it will shape the acquisition process (in particular the focus areas for due diligence), the value the buyer sees in your business (important when you come to negotiate the price), and also what the buyer does with the company after the acquisition, with obvious implications for you and the other members of the management team.
“Are you serious?” You probably wouldn’t frame the question quite as directly as this, but it is crucial to ascertain at the outset whether the potential buyer is serious or not. You don’t want to waste precious time and money on exploring an acquisition where there is no real chance of a deal being done. You should therefore ‘qualify’ any potential buyer in much the same way as you would qualify a sales lead (think: budget, authority, need and timeframe)
“Have you done this before?” An experienced buyer is likely to execute a deal much more effectively and efficiently than an inexperienced one. This matters because M&A will disrupt your business; with a novice buyer, it can be highly disruptive. That’s not to say that you thumb your nose at any first-time buyer, but take it into consideration. If, however, the buyer is has a track record, consider asking to speak with the management teams of previous businesses acquired by the buyer
“What is your ‘process’?” You will want know the immediate next steps and also get a sense of the overall timeline and process that the buyer envisages should you proceed. This in turn will help you gauge the amount of due diligence that the buyer’s team will want to undertake and, importantly, whether the buyer has funding in place or will require other approvals (e.g. from lenders or shareholders) prior to closing the deal.
“What plans do you have for us?” It is valuable to understand what plans the potential buyer has already formulated for operating and growing the company, and also for the current management team.
Five questions for you and your team
“Is now the right time?” Any serious offer should be considered seriously and be shared with the business’ owners. However, evaluate the pros and cons of ‘cashing out’ now… and whether you might obtain a better price in a year’s time, say. Growing revenues and a positive market outlook might allow you to command a higher price in 12 months. You should also think about operational considerations that might favor delaying, for example where your business is in the middle of a key client project, product launch, leadership transition, etc
“Are we ready?” While there is probably never a perfect time to sell your business, if you don’t have the bandwidth to handle the demands of an eager buyer and a multitude of external advisors, it can be a torrid experience. Buyers will typically want significant amounts of information (starting with financial info) and often direct access to your team. This will almost certainly be a big distraction from the day-to-day running of your business. Organization is key; if there is a chance – even a small one – that you would entertain an approach in the next 24 months, start getting your house in order today!
“What do we (really) want?” Human factors is one of the most neglected facets of M&A transactions. It’s important to understand the motivation of your shareholders and, if different, also of your management team. It’s also important to be in tune with your own aspirations and motivations, and to balance those against the duties you have to shareholders, employees, etc. A key part of your role as a leader will be to manage these expectations. You’ll need to be ready to make compromises and, most importantly, be ready to walk away from a bad deal!
“Do we have the right team?” Consider freeing up one or more members of your team organize your efforts, help respond to due diligence requests, etc. Alternatively, bring in a dedicated M&A resource on a temporary basis to help you navigate the process. A team of professional advisors is equally important; an experienced M&A lawyer, tax advisor, broker or investment banker will all help to maximize sale proceeds, mitigate risk and get you through the process efficiently.
“Who else might be interested?” If one potential buyer is interested enough to make an approach, there are almost certainly others that would also be interested. Even if you think that the original suitor would be the best fit, consider bringing in other bidders. Competitive tension is the single best way to maximize the price that you receive for your business.
Concept and Perspective 