Most owners are bombarded with calls from brokers, investment bankers, and other business owners inquiring about whether the owner would consider selling their company. These calls are received on a monthly and weekly, if not daily basis. There are a variety of ways to handle these calls based on the owner’s current thinking regarding the topic: 1) don’t take the call or return the voicemail message, 2) take the call, but politely decline, or 3) take the call and engage in a conversation.
The first two ways to handle the inquiry are obvious – there is no interest now in considering a transaction and the owner does not want to waste anyone’s time or mislead anyone about their intentions.
However, there are several reasons to engage in a conversation including curiosity, to gain information about the market and valuations, to learn what companies are acquisitive, and to learn if these buyers are strategic buyers or private equity groups. The owner should feel free to ask the caller questions starting with: who is their client. This question sounds simplistic; however, the answer is very important. The owner needs to know if the caller is working for a specific buyer that has identified the company as an acquisition target or if the caller is trolling for companies that could be for sale. In the case of the former, no harm, no foul. If the caller hems and haws though and says that they need to talk to their client, then it is likely that there is no client and the caller is searching for companies that could be for sale. When you hear back from the caller, they may advise the owner that the original client “is no longer interested.” No fear though, the caller has other clients that could be interested buyers.
Other questions to ask the caller include:
Why are they targeting this industry?
Why are they calling you?
Is their buyer a corporation or a private equity group?
In the case of a corporate buyer, what are their plans for the business?
In the case of a private equity group buyer, what is their investment thesis? Have they made money in the sector before? Do they have an executive that they want to back?
Let’s assume that the caller discloses the name of their client. The caller will then want to learn about the company in terms of size, profitability, employees, management, etc. The caller will also ask you to sign a non-disclosure agreement so that you can provide information to the buyer. STOP! As we discussed in a prior email, it is important to proceed with caution and to make sure that any disclosed information portrays the company in the best possible light. Rather than disclose a significant amount of information, it may make sense to have a call with the buyer with the follow-up step being an in-person meeting. After all, what’s the rush? The company was not for sale before the call so why rush through sale discussions now?
Let’s say that the owner is willing to consider the sale of their company. Why have discussions with only one buyer? We will delve further into this topic in another email, but our experience is that the buyer that motivates a process is not necessarily the best buyer, the buyer that offers the highest price and best terms, or even submits a bid in an organized process. With that said though, the buyer, through their agent, is trying to create “proprietary deal flow” and would prefer that the owner not talk with other buyers and create a competitive sale process.
It is worth noting that if the owner shows any interest in considering a sale, the caller will be relentless in following up to encourage the owner to sign an NDA, disclose information, and meet with their client. After all, most of the caller’s compensation is based on a completed transaction. During the period in which the owner may have some interest in considering a transaction but has not committed to following through, managing the business remains infinitely more important to the owner than being responsive to the caller’s requests for an NDA, information, and a meeting.
In conclusion, owners should judiciously consider engaging in conversations with callers, be cautious about disclosing information, confirm that the caller is calling on behalf of a specific, named client, and determine early on if the owner is genuinely interested in following through with the discussions.
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