Have you ever thought of selling?
If you run a quality professional services firm of any size, especially as the economy re-ignites, chances are high that, at some point, you will be approached by an organization interested in acquiring you. It may be a known competitor, but it could also be a quite different type of acquirer, with a quite different business model and valuation metric.
Maybe you have thought about it or maybe it has never been in your plans, but being surprised by an unsolicited approach is typically the very point in time when you are most excited, and most vulnerable.
Quite likely you would be dealing with a professional and experienced acquirer while you may have limited relevant personal experience – founding and growing a successful firm takes a whole lot of smarts, sweat and self-belief, but it is a different “wheel-house” than selling it at an optimal valuation and on most favorable terms. Be careful not to be drawn into a process, or a transaction that ultimately does not meet your aspirations, your expectations, or your needs.
Our Team of experts at Indigo Advisors has guided the founders and leaders of numerous firms through sales and merger processes. Based on our own experience and expertise, we have identified four “Golden Rules” in responding to an unsolicited approach to sell.
Rule One – Confidentiality!
First things first: a non-disclosure agreement (NDA) is essential.
Confidentiality should be a concern from the first contact and throughout the transaction process:
- Never share confidential information (strategy, financials, intellectual property, clients, talent) before there is a binding non-disclosure agreement in place. Make sure the potential acquirer only has access to publicly available information until you are properly protected. You can never take back valuable information shared with enthusiasm!
- The NDA should include a prohibition on soliciting your talent if ultimately a transaction does not execute.
- Internal confidentiality should also be considered. Once you decide to enter into a prospective transaction process, you must also decide who within your company needs to know about it, how much they need to know, and how much they need to be directly involved. Potential leaks need to be avoided, but you also don’t want your key talent to lose trust when they learn of a sale of the firm they never saw coming.
Rule Two – Respond to Questions with Questions
Remember – this unsolicited approach is about a prospective Value Exchange, not the receipt of a favor!
At a minimum, you need to understand from the prospective acquirer at the outset:
- Why did you make this approach?
- Why do we seem attractive to you?
- How does our company fit into your growth strategy?
- What are your relevant strengths and how do you see those as synergistic with ours?
- What value would we add to you?
- How would we be compensated for that?
Once you have answers to those questions you are then sufficiently informed to apply Rule Three!
Rule Three – Be clear for yourself
Before you go further – and potentially get drawn along in the slipstream of an unsolicited approach -you need to decide: is this right for me, right for us, right for the business? The decision to engage needs to be head and heart, just avoid letting ego become the driver! And the Go/No Go (commitment to a process, not yet to a sale) decision needs to be made up-front, not part way through the process, or you risk distraction and a loss of focus on your business.
Rule Four – Be Entirely Aware of the Who, the How and the When
Getting to “Yes – this sounds like a great idea on both sides” is relatively easy. But what has to underpin that view is a robust assessment of whether there is a realistic likelihood of executing a successful transaction.
- Is this really a competitive fishing exercise?
- Does this prospective acquirer actually understand this space and what is required to succeed? Are they only interested in us, or making a series of parallel approaches?
- Who is the “Executive Sponsor” for this approach – do they have decision-making authority to make it happen? Is there actually a mandate for this prospective acquisition?
- What is the prospective acquirer’s anticipated Due Diligence process and timing? (Rome wasn’t built in a day and anyone suggesting they can close in six weeks is likely employing the same general contractor!)
- What resources and expense will you need to commit and potentially re-deploy to this process? What is the opportunity cost to you in doing that?
Now, the Good News!
Having applied the four Golden Rules, prospectively leveraging the experience and insights of our Team here at Indigo Advisors en route, you are now in a really good place to actively explore the potential for a successful transaction, accomplished with a sense of confidence in the process and ultimately the outcome.