Unsolicited M&A approaches by potential buyers are often a feature of life for most owners of Human Capital sector businesses. Whilst this can be positive news for ‘exit-minded’ owners, there are many pitfalls to avoid when responding to such approaches.
Here are some best practice pointers for owners on how to respond to an unsolicited approach.
1. Be selective
Filter out time-wasters by assessing the credibility of the potential bidder before engaging or agreeing to a meeting. Have they ever made acquisitions before, do they have the funds to do so, and are the individuals you are speaking to mandated by their company to deal with M&A? If you feel unconvinced on such issues, chances are that a meeting will probably be a waste of time and distraction. Having a trusted M&A advisor in the wings to assist in this initial assessment is often useful for owners.
2. Plan and prepare
Should you decide to meet, plan for the meeting by knowing up-to-date numbers about your business such as the split of gross margin and gross margin% by division and by territory. You should also be ready to outline your growth plans to a level of detail that is informative but not commercially sensitive. And prepare some questions to ask the buyer about its business – this always goes down well and will help to ‘equalise’ the meeting.
3. Control the discussion
Control the meeting by holding it discreetly at your own offices, inviting an advisor or trusted colleague to join you for support, and by sticking to a clear discussion agenda. Be open but always feel free to duck any questions that feel too ‘searching’ and (golden rule) avoid discussing valuation or deal structure at such an early stage (even though any bidder worth its salt will try to draw you into doing so!).
4. Get an offer in writing
Ask for an initial written offer as the next step following the first meeting if they remain keen. Avoid all further discussions until you have this offer letter safely in hand. Buyers will often try and resist committing to an offer letter so that they keep their options and negotiations fluid to their own benefit.
The written offer should include indicative valuation, proof of funding, and all other acquisition terms that the bidder has in mind. Having an initial written offer provides an owner with both formal certainty of interest and a clear basis from which they and their advisors can begin negotiations with the buyer towards an improved final offer.
5. Assemble your team
Assemble your exit deal team, which would normally include your managing director (if you are outside of the business), finance director, M&A lead advisors and lawyers. This deal team will collectively be able to advise you on the merits and the tactics of completing the deal with the initial bidder or on ‘widening the field’ by speaking to other potential buyers.
Published in the Recruiter, 9th May 2011
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