I think we have all been there: someone randomly calls you and says they are interested in buying your company.
I don’t know about you, but when I got those phone calls, I just rolled my eyes. Something about a random phone call just feels, well…icky. Seriously, what do you know about my company? What makes you think I want to sell? Who gave you my contact info? Those were all the thoughts that went through my mind.
Here, however, is a different scenario: you have been at a conference for a few days with your peers and you are winding down at the bar. One of your competitors (well known to you or not) sits next to you and asks, “So, have you ever thought about selling?”
Somehow, this resonates differently, so you continue the conversation over maybe a cocktail or a cup of coffee. In my case, I sat down at the bar after a long day and had this conversation over a couple of shots of tequila with the partner of a firm that I respected. We hit it off! Not sure if it was the brand of tequila or the conversation (or both), but we had a lot in common and I knew they were serious, so they had my attention.
Well, as an M&A advisor, I am supposed to say, “Call me and let’s discuss your options!” But that’s not me, and I like it when you can manage this stage on your own. So, I thought I would compile a small list of Do’s and Don’ts if you find yourself in this situation, along with a few obvious questions you might want to ask.
Some questions may depend on whether you are speaking with a strategic buyer or a private equity firm, but here are a few general ones:
- What about my company, specifically, is of interest to you? IP, geography, people, products, etc.
- What is your timeline for making your next acquisition?
- Have you made other acquisitions recently? If so, how long did that process take?
- How will you fund this acquisition?
If you are not getting “good” answers for these questions, then as flattering as their interest may be, I would move on. If, however, their responses are resonating with you, then let’s get into the Do’s and Don’ts.
- Ask questions around the deal timeline. Not having one sucks up your time and mindset while you wait for the buyer to take the next step.
- Be clear about your go-forward plans – now is not the time to hide them. Whether you want to stay post-acquisition or not, be genuine about your response.
- Ask questions about their revenue (after you sign an NDA) and their net income (after all, we need to make sure they are much larger than your company). Again, if they are not willing to share that after signing an NDA, view this as a sign they are tire-kicking.
- Don’t be the first one to offer up a price, even if they ask. You may never know what is in their head. If the price they offer up initially is too low, then you can let them know what industry averages and ranges currently are – assuming you know this. Don’t, however, offer up a ridiculous price – it truly serves no purpose and makes you look insincere.
- Never upload customer or employee data into your data room. See my blog on what should be in that data room here.
- Never sign an LOI with out seeing their financials – no matter how large they are.
Clearly, there are many other do’s and don’ts in this process. And I go into much more detail in my course, Ready Set Sell. Be sure to get on my waitlist if you are interested.
Finally, if you are chatting with someone from a private equity firm, be sure to download my resource, What to Do When Private Equity Calls.