Knowledge and Insights

One of the biggest dilemmas business owners may face is when they receive an unsolicited offer to sell their business. On one hand the business owner has invested countless hours, dollars and sweat equity to make the business successful and may foresee continued success and financial rewards for these efforts. The business is also central to the life of the business owner and a source of great accomplishment and meaning. On the other hand, the idea of selling the business – cashing what appears to be a lucrative check and sailing off into the sunset to pursue happiness and retirement is very compelling.

We are often consulted by business owners who face this dilemma. Typical questions we receive include Should I accept this offer?; Should I negotiate more?; What do you think my business is worth?; Is now the time for me to sell?;  Should I just continue to grow and build my business?; What other offers might I receive?; What could go wrong?; etc.

While these questions are not easy to address, the answers are found by asking additional questions and taking the time to conduct some further analysis and research. Arbitrarily accepting the unsolicited offer is clearly not the recommended course of action. Based on our experience working with numerous business owners on ownership transfers, below are our recommendations for handling an unsolicited offer:

EVALUATE YOUR OPTIONS

The first step is to determine and evaluate all of your options. A third-party sale may be a viable ownership transfer strategy, but there are many other options to choose from. Many companies are able to effectuate an ownership transfer by means of an internal succession whereby the business is sold to internal leaders or family members, where the business owner is able to liquidate the value of the business while retaining legacy and some role in the business going forward.

A full or partial sale to your employees through an Employee Stock Ownership Plan may also be a viable option and can offer employees an ownership route while providing the business owner liquidity and some unique tax deferral opportunities. A partial sale of minority ownership (less than 50%) may be an attractive option given the current growth trajectory and work-life horizon of the current owner.

Continuing to grow and further develop the business may also be an option, with the goal of executing a business sale/transfer down the road. If a full third-party sale is in the cards, there are many different aspects to evaluate, such as whether you want to sell to a private equity group or strategic buyer, what your role and compensation will be (if any) with the company post transaction, how your sale proceeds will be received in the form of cash, future payment based on financial results of the company post close (earn-out), rollover equity in the buyer, to name a few.  Business owners have these options and many more to explore before accepting an unsolicited offer to sell the business.

DO YOUR HOMEWORK

When it comes to selling a business, there is a saying that “Two or More will get you More!”. This highlights the benefit of receiving more than one offer by creating an auction environment where multiple offers are proactively (instead of reactively) solicited in a systematic fashion with the business owner’s objectives front and center. After conducting a thorough assessment of all viable options (outlined above) we always recommend the business to go through a sale auction process if the ultimate decision is to sell to a third-party. Not doing so will undoubtedly leave money and opportunity on the table, and may result in a less than ideal acquisition candidate.

Doing homework is absolutely critical for a successful outcome, but it is not limited to just the deal at hand.  Gathering insight in a number of different areas is critical, such as to what the business is worth based upon comparable sale data, what amount does the business owner need to receive proceeds (net of taxes) to satisfy retirement objectives, what weaknesses may exist in the business that could result in the buyer either revisiting their offer or restructuring the deal, as well as what transaction structures and/or strategy may be optimal to limit legal exposure and minimize taxes to extent possible, just to name a few.

TALK IT OVER

For most business owners, a business sale is a one-and-done transaction and they are not familiar with the process of selling a business and the options available since they have never been involved in a sale transaction. It is important to assemble a team of advisors to discuss an unsolicited offer to make the best informed decision on how to move forward. This team of advisors will likely include investment, tax and business advisory professionals, along with an attorney that is well-versed in business transactions. By utilizing this team, the business owner will gain perspective and the ability to properly evaluate all of their options, and if ultimately the decision is made to pursue a sale, this team of advisors will play a critical role in doing the necessary homework to lead to a successful outcome.

OUR TEAM IS HERE TO HELP

Contemplating the transfer or sale of a business can be daunting for any business owner, but our team is here to help. Mercadien’s Transaction Advisory Services Group has extensive experience in working on business transfer and sale transactions for private companies across various industries. We serve as trusted advisors to our clients, and make sure we get to know all aspects of their business as well as their goals and objectives, so we can recommend a plan that’s right for them and their business. Contact us today to learn more about how we can help you and your business.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.