By Aleem Bandali
Everyone wants to be wanted.
As a business owner, it is particularly gratifying when others are interested in what you have created or built.
Interest can take many forms: interest from vendors wanting to supply you, interest from customers wanting to purchase your goods or services, interest from advisers wanting to work with you, and interest from competitors or financial buyers wanting to purchase your business.
As illustrated by countless headlines, articles and commentary, 2015 was a robust year for merger and acquisition activity. Despite a significant decline in the energy sector in 2015, combined deal volume in the U.S. and Canada remained stable for 2015 at just under 22,000 announced, closed or effective deals during the year. Notwithstanding stable deal volume, deal value increased year-over-year by over 30%, to almost US$2.2 trillion based on announced, closed or effective transaction data.
Fuelling the robust M&A activity were significant capital reserves held by both strategic and financial buyers, very attractive interest rates and a competitive tension in the marketplace to complete transactions. This competitive environment for strong acquisition opportunities spurred an increase in the number of unsolicited offers our clients received in 2015.
While very gratifying as an affirmation of your business’s success and an opportunity to potentially monetize this success, these unsolicited offers should be viewed with cautious optimism. Often, potential buyers use unsolicited offers as a means to canvass many business owners and seek to capitalize on an unprepared owner with the prospect of an immediate payday. This is not to say that this is always the case, but, in all circumstances, it is far better to adequately prepare before initiating a discussion with a potential buyer.
An unsolicited offer to purchase a business can come by way of a telephone call, conversation or, in some cases, a written communication or even a letter of intent, enticing a business owner to initiate a conversation about selling. As noted earlier, it is very gratifying to know that the business you founded or built is seen as an attractive acquisition opportunity, and it is tempting to start thinking about the many ways to spend the sale proceeds. Accordingly, some business owners will entertain these conversations without the requisite self-assessment, financial analysis, legal protection and due diligence.
In the event you have received an unsolicited interest to sell your business, make sure you engage a financial adviser to assist you. There are five high-level issues to consider with your financial adviser prior to advancing discussions with an interested party:
1. Complete a self-assessment of yourself and your business. This includes asking yourself the following questions:
· Is this the right time to sell?
· Am I ready to sell? What will I do post-transaction?
· From a personal and corporate perspective, am I efficiently structured to minimize the tax liability?
2. Complete a financial assessment of yourself and your business:
· How does the financial performance look over the past one to five years? Is the business trending upwards? What can be done to improve its financial performance? Does any pre-transaction planning need to be done?
· What is the business worth to me from both an ongoing income perspective and enterprise value? Does selling the business achieve my personal financial objectives?
3. Are there any other potential buyers out there I should be aware of that would pay a higher enterprise value, retain more of my employees, be a better cultural fit, etc.?
4. Why is this particular buyer interested in my business, and what is it worth to them?
5. How do I protect my interests throughout this process?
It is important to engage a financial adviser at the beginning of this process. The questions above need to be answered thoughtfully early on, as they will have significant implications to the sale of your business. The right financial adviser should be able to increase the competitiveness of the process, resulting in a higher enterprise value, shorter closing timeline, expedited due diligence and decreased value discounts. The benefit of running a competitive process with the help of a financial adviser almost always outweighs the cost.
Ultimately, as a business owner, it is up to you when, how and for how much you sell your business. Keep running your business in the manner that made you successful and sought after in the first place. Be clear about what you want financially and otherwise throughout the process, and you will be much better off, whether a transaction occurs or not.
Watch: Aleem Bandali discusses the M&A trends in 2015, and the expectations for 2016
