An unsolicited approach is likely to catch you at an unexpected time. Yet, given the current market activity and the growth potential in the sector right now, it is not unlikely to happen over the next few months.
Here are some tips on best dealing with those approaches (or assessing whether there is genuine interest).
1 - Assess and verify the approach – don't get distracted!
Although exploring the approach could be interesting for you (depending on where you are on your business journey), be mindful that this can also be time-consuming and distracting for you in the first instance and your senior team later on. And we know this comes at a price.
First, understand the validity of the approach. When made informally (over a call, for example), request a formal offer email or letter. That way, you can have time to consider it properly and respond accordingly.
Second, assess who it is that has approached you. Is it the ultimate buyer or an intermediary (such as a corporate finance firm), or could it potentially be an investor? You need to understand the buyer and their full intentions before you can consider an approach further. A full understanding also helps to identify how serious the approach's intent is.
If, after assessing the approach and buyer, you want to get into a deeper discussion, consider the following:
2 - Have an understanding of the value of your business
While value will vary depending on the market and synergies with potential buyers, it helps to have a rough idea of what to expect and how the buyers think about the value in your business. We will be discussing this further over the coming weeks, but for now, the simplest way to think about it would be to know that the value of a professional services business is commonly based on a multiplier of the EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation). Your advisers will help you with this when the time comes, based on market conditions and current M&A activity for similar businesses.
3 - Don't overshare information
Before you share anything, it is wise (and good practice) to sign a Non-Disclosure Agreement. It will test the buyer's intent but also formalise your response.
When sharing information, you present your business to the buyer, but all buyers will understand and value aspects of your business differently.
You must control the flow of information and decide what and when to share to eliminate room for incorrect interpretation.
4 - Know that you can ask for information in return
It is worth noting that if someone approaches you and asks for information about your business, you can also ask about theirs in return. Before you consider whether this is good for you, your team and your business, you need to know about the potential buyers and their strategy. Ask them to help you fill in knowledge gaps to equip yourself to make a better assessment of fit.
5 - Know who to involve from your team
Again, this can be very distracting, or your could misunderstand. Be mindful of who you choose to involve from the team and at what point.
It isn't necessary (or ideal) to involve anyone until you have assessed the offer and want to engage in a more detailed discussion with the potential buyer. After that, you will need to choose carefully, as the team's primary focus must be to keep the business running and growing.
6 - Don't get stuck by not asking for help
It may be hard to know whether the approach is worth considering and, if so, how to make the most of it without impacting your day to day business operations. So don't be shy ask for help.
An advisor would guide you through the sale process and will be able to advise on your options and open the process to other interested buyers.
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