At Heritage Capital Group in Jacksonville, Florida, we have had several situations where a company that was not for sale has been approached by a buyer about a business buy transaction. The buyer may either be a principal in a private equity group, an in-market or out-of-market competitor, or a firm in a related industry that wants to initiate a vertical integration.
Our experience is that the party that you are going to be dealing with may have many years of experience in buying businesses and negotiating business buy transactions. Chances are, this may be your first and only sale of a business. We can help you not only level the playing field, but tilt it in your favor.
The buyer will likely ask you for financial information, customer lists, organizational charts, and other data that should only be provided at the point where the buyer comes up with an acceptable Letter of Intent. Do not, under any circumstances, provide any information, even if the individual or firm interested in your company offers to execute a non-disclosure agreement. The firm that will approach you in this way is looking to make a pre-emptive strike. They may put an offer on the table even before you provide them any information; that offer will be subject to adjustments during their due diligence process. Their goal is to put you in a position where you are dealing with only one purchaser. While this prospective purchaser may, in fact, be a bona fide purchaser, they may not be the best buyer. Here are some of the reasons why:
- The buyer needs to be “qualified.”
- Do they have the funds to close, or do they have to raise capital?
- Do they have a history of re-trading during the diligence process or at the closing table?
- How will they treat your employees?
- Are their culture and their values consistent with what is important to your stakeholders?
- If some of the purchase price is an earn-out, are you comfortable with the new management and the proposed pay-out parameters?
- Are you being asked to stay for a transaction period
Do you understand the complex nature of representations and warranties that you will be asked to provide?
Assuming that you want to sell, is now the optimal time?
If someone calls you and you aren’t prepared to sell, you are entering into the process, not from a position of strength, but from one of weakness. Ideally, you want to be dealing with multiple buyers to create competition, improve transaction terms, and increase the final sale price.
Heritage Capital Group is an advisory firm that can, and will, advise on the issues raised above and many others critical to a successful transaction that control. Our goal is to position you to arrive at a purchase price that is favorable to you, realize the maximum amount of proceeds at closing, ensure that any contingent payments have the highest probability of occurring, and minimize your representations, warranties, and post-closing risks.
In instances where we have represented people selling a business who dealt with buyers making a pre-emptive strike, we were able to obtain substantially more proceeds for the seller than the initial offer, limit the risk, and negotiate from a position of strength with the prospective buyer, knowing that they were committed to this purchase.