A View of Florida: Private Equity Deal Report

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10 questions to consider when you receive an unsolicited offer to buy your business

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By James Cassel, Special to the Miami Herald
April 20, 2014



When middle-market business owners receive unsolicited offers from potential buyers, they often fail to take the offers as seriously and evaluate them as strategically as they should. As a result, they often end up hastily accepting or rejecting the offers and regretting their decisions in hindsight days or years later.

The common mistakes made by business owners in these cases are varied and numerous. They close doors on offers that would have been in their best interest in the long term, sell prematurely, take the first deal that comes their way without looking for better ones, or fail to use the opportunities to strategically analyze their businesses and determine what the offers potentially represent.

Here are some of the key considerations that my investment banking firm generally takes into account when counseling clients who come to us after having received unsolicited offers:

1. Are you interested in selling your business at this time? An unsolicited offer should, at a minimum, prompt reflection and evaluation.

2. If it turns out that you have an interest in exploring the possibility of a sale, should you negotiate with the party who approached you on an exclusive basis or explore other possible buyers by running a limited or broad sales process, which may help you maximize value?

3. Is the offer coming from a sincere, legitimate potential buyer or from a buyer with ulterior motives, such as acquiring intelligence about your business and its customers? It’s critical to conduct proper due diligence upfront to understand the suitors’ motivations and whether to engage.

4. Do you have enough capital to continue to grow your business and stay competitive, or is now a good time to sell? Would seeking external capital or recapitalizing by selling a minority or majority part of your business be better options?

5. Is now the right time for you to sell? There are internal and external considerations. Many owners wait to begin considering selling their businesses until their businesses are headed downhill or they have been hit with unexpected major events, such as divorces or deaths in their families. They take reactive, emotional approaches rather than proactive, strategic ones. This is the opposite of what should be done, as they’re more likely to extract higher values for their businesses if they sell when their businesses are highly profitable and positioned for continued growth. Also, with today’s low interest rates, limited supply of available quality businesses for sale, and high number of buyers with available capital, prices are high.

6. What do the near- and long-term prospects look like for your business? Does the marketplace in the coming years look promising or does it look increasingly challenging as a result of emerging business trends or new technologies that may hurt your business? Although perhaps you were not thinking about selling your company, selling might be in your best interest if, for example, the offers are significant enough or if the competitive landscape is likely to intensify and you would be well served to make a timely exit.

7. Is your business too dependent on its current owners or on a handful of specific customers, and how likely is your business to survive without them? Buyers are not likely to pay top dollar for businesses they believe may be threatened by factors like these. Thus, it’s always helpful to make necessary adjustments to ensure businesses are in the best possible position when they are marketed and sold. This process takes time, and it is simply not possible to get all this done in a few days or weeks.

8. Do the potential buyers have the financial wherewithal to acquire your business? How likely are they to close on the deal?

9. Are the potential buyers likely to be good stewards of your legacies and keep up aspects of your business that you might consider important, such as providing a certain quality of services or products, financial opportunities for your employees, or certain support to your community?

10. What are the potential buyers relying upon to value your business? Owners of family businesses should seek professional assistance to prepare normalized financial information with appropriate add backs to reflect their true business earnings. This is critical for business owners looking to maximize value. Price is generally based on a multiple of something. Therefore, higher adjusted earnings equate to higher purchase prices.

There always will be advantages and disadvantages to selling or keeping any business, so it’s critical to know how to evaluate and respond to potential unsolicited offers. For important decisions like these, it’s wise to consult qualified advisors such as attorneys, accountants and investment bankers who can bring significant value by helping you understand all of the options, avoid making emotional decisions, and protect your best interest.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. He can be reached at jcassel@casselsalpeter.com and www.casselsalpeter.com