After working incredibly hard, you have finally been making record profits, with your independent business, year after year. You have your company structured perfectly. Your management team is effective, your workers are satisfied, and your shareholders are reaping all the rewards.
Things are going so well and they don’t seem to be slowing down anytime soon.
You have absolutely no plans to sell, and your future looks clear. You know just how much more progress you can make at the helm of your business, and you’re getting there at a record pace. Then, out of the blue, you get a phone call from someone talking about mergers and acquisitions law.
The person on the line introduces themselves as a potential purchaser and makes an initial offer on your business. At first, you probably ignore them with skepticism. Instead, you focus on growing your business every day and forget all about their unsolicited offer.
But the more your valuation grows, the more calls you get.
Although you still aren’t taking the offers that are rolling in too seriously, curiosity begins to get the better of you. You begin to take an interest in weighing the pros and cons of the various mergers that have been suggested.
Finally, someone says a number that you can’t refuse, and just like that, you will begin negotiations. Unfortunately, this process might take years and many buyers and sellers experience deal fatigue. Keep reading for three tips on how to make sure your sale doesn’t lose its momentum.
Managing your Unsolicited Offers
When you receive an offer that is unsolicited from someone who can credibly purchase your business, you should feel very proud. It is a huge sign of accomplishment that you were able to grow your small business into what might become a conglomerate.
Once you have given exclusivity in a deal started by an unsolicited offer, the onus of responsibility will shift to you. The purchaser will want you to give them any information that can help them to better understand the proclivities of your business.
This kind of information can help them to identify possible risks, within your business model, that weren’t visible on the surface. They will want to pour through all your documents and set up a data room.
Tip Number One: Maintain a Data Room
If you are unfamiliar with mergers and acquisitions law, you may not have heard the term “data room” before. This term refers to a secure location that you can create, on a server, with your seller so that you can share confidential materials for mergers and acquisitions law that need to be inspected. This setup will allow documents to be safely sent.
Another term used for this type of storage center is a due diligence data room because it is an integral part of the vetting process. Investors like to analyze every aspect of a firm’s business before they will make a commitment to acquiring it.
To create a data room, you will need a lot of time, and it will take a ton of effort. Some businesses dedicate entire teams to maintaining their rooms.
Although getting these documents in place before a sale is helpful, it is only something you want to share once you have decided for certain that you are planning to sell and have signed an exclusivity agreement. The documents involved are highly sensitive, containing things like copies of financial records, accounts of legal activity, and documents that contain intellectual property.
To make it less expensive for the person selling their business, data rooms are most often created to be accessed remotely. Since the entry is restricted, the buyer’s team may only view it one at a time in the order stated by a predetermined schedule.
Tip Number Two: Do Your Due Diligence
Unfortunately, everyone who is interested in your business isn’t going to always have pure intentions. In the business world, everything is a competition and there are some that like to take short cuts. But how do you avoid these sharks?
Due diligence (on the part of the seller) is the name for the process, in mergers and acquisitions law, that a seller will go through to assess the possible benefits. They need to know if the company attempting to purchase them is a suitable buyer that has the ability to close the transaction.
One of the biggest things you need to look for is their intentions. It is not unheard of for a competitor to make an offer on a smaller company just to gain access to their proprietary knowledge, without ever actually purchasing the company. Although this kind of shady business practice doesn’t happen often, it happens enough that you should be combing meticulously for any sign of inconsistencies.
Most of the time, your potential buyer will be genuine. One hallmark of their honesty is their track record with previous acquisitions. If they have successfully acquired other businesses, then they will be more likely to act properly while purchasing yours.
Tip Number Three: Manage Your Expectations
As those well acquainted with mergers and acquisitions law know, managing your expectations is crucial to the success of your deal. The time frame needs to be closely monitored and agreed to in a letter of intent. This letter is used to create an infrastructure for the sale.
During this key stage, the seller should be in control. If the buyer were dictating the process, or if it were planned to be open-ended, it often leads to deal negotiations at the final hour.
A proper exclusivity period is no more than six to eight weeks and efficiency during this time is a great way to avoid deal fatigue.
Deal Fatigue in Mergers and Acquisitions Law
Everyone loves to focus on the potential profits they will be making after their deal goes through. But getting too excited can hurt you badly.
If you are lucky enough to be going through with selling your business, don’t spend a penny until the ink is dry. Unfortunately, all too often sellers will mentally withdraw from their purchase before the deal has completed. They will either set their sights on their next venture or be distracted by record growth in their own business. Don’t make their mistake.