The Offer: When to Seek a Trusted Advisor

In our new series, I Received an Offer, What Do I Do?, our goal is to empower entrepreneurs to make informed decisions at pivotal moments during the business life-cycle. 

This is particularly true for mature, high-performing businesses that may not fully grasp the value they’ve cultivated.

By engaging SEA as a trusted advisor during key opportunities, entrepreneurs gain the strategic insights needed to leverage their business’s value effectively. With our guidance, they navigate intricate transactions with confidence, ensuring desired outcomes – whether it’s maximizing value, preserving legacy, or facilitating a seamless transition of the business for employees and stakeholders.

In this installment of I Received an Offer, What Do I Do?, we will explore just how to appropriately and effectively respond to an offer to sell the business and when to involve an M&A advisor to protect your sell-side interests. 

The Excitement and Uncertainty of Receiving an Offer to Sell

Receiving an unexpected offer to sell your business can be a thrilling yet nerve-wracking experience. It’s a moment of excitement as you realize the potential value of your hard work, but it’s also laden with uncertainty about next steps. 

“The Offer” signifies a pivotal moment when a potential buyer expresses interest in acquiring your business. This expression of interest can take various forms, from a formal written proposal to an informal verbal inquiry. Offers often arise in common scenarios and most often when your business demonstrates strong performance, attracts attention from competitors, or operates in a sector ripe for consolidation. 

When an unexpected offer comes in, a few red flags to consider include:

  1. Unsolicited Nature: If the offer comes out of the blue without any prior engagement or indication of interest from the buyer, it could raise concerns about the sincerity or motives behind the offer. They could be fishing for information that could put your operations at risk. 
  1. Lack of Information:  If the offer lacks detail or transparency regarding the buyer’s intentions, financial capacity, or acquisition strategy, it may indicate a lack of seriousness or thoroughness on their part.
  1. Significantly Below Expectations: If the offer significantly undervalues your business or falls far below your anticipated price range based on previous valuations or industry standards, it may suggest that the buyer is not willing to pay fair market value, potentially signaling future negotiation challenges or unrealistic expectations from the buyer.

What if an Offer Seems Too Good to Be True?

Businesses in the lower middle market have become prime acquisition targets for strategic and financial buyers. If an offer comes in unexpectedly and seems too good to be true, it’s imperative to proceed with caution. While an exceptionally high offer may appear enticing and flattering, it could also signify potential risks or hidden agendas. Aligning with a trusted advisor at this stage is crucial to ensure sellers conduct thorough due diligence, ensuring the buyer’s financial capability and intentions align with their objectives. Seeking guidance from experienced advisors can help assess the offer’s legitimacy and negotiate terms that prioritize long-term value, safeguarding the seller’s interests in the transaction.

Questions to Ask SEA – Involve Your Advisory Team Early

When confronted with an offer, asking the right questions is essential. Yet, navigating such scenarios can be unfamiliar, especially for entrepreneurs in the lower middle market experiencing this scenario for the first time. Engaging an advisory team ensures that you ask the right questions and understand the offer’s implications accurately.

Understanding the terms and implications, including financial, legal, and operational aspects, facilitates informed decision-making. As experienced advisors, SEA can provide valuable insights and guidance – across industries – to navigate complexities and make informed decisions aligned with your objectives.

Key questions to consider include:

  • What are the specific financial terms of the offer?
  • What legal considerations should be addressed before proceeding?
  • How will the offer impact the operational aspects of our business?
  • Are there any ambiguous or unclear points that need clarification?
  • How can SEA help navigate these complexities and ensure a favorable outcome for both the business and the management team?

Involving Stakeholders: Who Should Be at the Table When Evaluating an Offer?

When considering an offer, it’s crucial to involve the right stakeholders in discussions. This includes internal stakeholders such as executives, board members, and key employees, whose insights and perspectives can be invaluable. By engaging a diverse range of stakeholders, you can ensure comprehensive decision-making and alignment with your business objectives.

When assessing offers, it’s important to discern between types like IOIs (Indications of Interest) and LOIs (Letters of Intent). 

IOIs are preliminary offers expressing a buyer’s interest in acquiring a company, often based on limited information. They outline the proposed terms and conditions but are typically non-binding, serving as a starting point for negotiations. 

LOIs (Letters of Intent), on the other hand, are more formal documents that outline the key terms and conditions of a potential deal in greater detail. They indicate a stronger commitment from the buyer and serve as a roadmap for further due diligence and negotiation, often leading to a binding agreement.

Determine what information you’ve shared and the motivations behind each offer. Understand whether terms are binding and assess the alignment with your company’s objectives. Explore if the offer is based on financial metrics, strategic fit, or other factors. 

Are You Assessing Offers Holistically?

In evaluating offers, it’s essential to consider factors beyond financial valuation, including cultural fit, strategic alignment, and growth potential. Understanding the potential risks and challenges associated with different offer types is vital for informed decision-making. Identifying deal breakers and non-negotiables early in the process helps streamline negotiations and align with your business objectives.

Next Steps With Strategic Exit Advisors

Navigating unexpected offers in the lower middle market demands careful consideration and expert guidance. At SEA, your personal and financial goals are our priority. We support your needs during every aspect of our process to honor your work and relieve any concerns around:

  • Earning the best value for your business.
  • Achieving your ultimate exit.
  • Taking care of your people during the transition of ownership.
  • Making certain the business’ culture endures.
  • Streamlining the exit process.

By aligning with SEA as your trusted advisor, you gain access to tailored insights, strategic guidance, and a collaborative partnership aimed at maximizing value and ensuring informed decision-making throughout the transaction process. 

Stay tuned for our next installment of “I Received an Offer, What Do I Do?” where we dig deeper into the dos and don’ts of mergers and acquisitions transactions with  “Demystifying Deal Points: Understanding the Essentials.”

The SEA Difference

When entrepreneurs work with SEA, they are able to collaborate with a team of M&A experts to overcome challenges and optimize their strategic exit. At SEA, we are committed to understanding your transition goals and tailoring our process to ensure a clearly defined outcome. 

Whether you’re on the buy side or the sell side, our comprehensive advisory team is ready to navigate challenges, optimize strategies, and contribute to a seamless and successful exit. 

Reach out to us anytime at (215) 489-8881 or schedule a conversation.

Strategic Exit Advisors