What to expect when you’re asked to consider buying a business
We have posted on this site the potential strategic value to first acquire a business to bolt onto yours to build your capability and scale ahead of you selling your business one day. This strategy could accelerate the building of your company worth.
You probably periodically receive emails or calls from buy side representatives looking to see if you’d be interested in acquiring the company they are representing. Should you respond because you are curious about the opportunity? Here are things to have in mind as you think about whether you want to kick the tires of these reachouts:
- We advise clients, only look if you’re truly intending to consider acquiring. It’s disingenuous to sign the deal NDA because you want to receive what could be competitive intelligence yet you don’t have intention of acquiring. Doing this over time could give you a bad reputation in the market and potentially harm your future transaction.
- Be prepared to sign an NDA ahead of receiving any details about the potential deal. All you will receive is a vague amount of information about the selling company and don’t ask to receive more ahead of signing the NDA. Regarding the NDA, look to ensure it is not a generic one but one that is crafted specific to a possible transaction. The reason is you may have been contacted as a potential acquirer because you compete with the selling company. If you are competitors, then signing a standard NDA could be problematic for the future if you don’t acquire it.
- Once you express initial interest and sign the NDA, be prepared that a seasoned seller or their representative will have a screening process to determine whether you are serious about considering a transaction. Once you’ve signed the NDA, be prepared for screening questions ahead of receiving the confidential details about the potential transaction:
- Are you a potential strategic or financial acquirer?
- Have you done prior acquisitions and if so, how many?
- What will be your source of funds – will you have to finance some or all aspects of the deal?
- Would your deal likely be all cash or will you require an earnout or seller reinvestment?
- What would your estimated time frame be for conducting your due diligence should an initial offer be accepted?
- Do you already have M&A legal counsel ready to represent you in a potential transaction?
Play this movie forward related to receiving these sell side queries. Be prepared to show that you are serious about considering the opportunity, truly capable of conducting a professional transaction and not just a tire kicker that could waste the sellers’ time. Build your company reputation, don’t harm it by how you manage these types of queries from sellers. Being able to show you are prepared to conduct a potential acquisition could position you well in the eyes of the seller and give you an advantage versus other buyers also expressing interest.
