An unsolicited acquisition approach shows that your business may fit a buyer’s criteria, not that it is uniquely selected or that a sale will follow. Check the buyer’s identity, funding and intentions, control disclosure and compare the conditions and payment terms before accepting any proposal.
By Tony Vaughan · Published · Last reviewed
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If you're an entrepreneur pondering about an exit strategy, an unexpected acquisition proposal from a potential suitor or investor can be an exhilarating and ego-boosting experience. However, it's essential to remember that this is just the commencement of a multifaceted process known as deal origination.
Understanding the Mechanics of Deal Origination
Deal origination is the process through which acquirers identify and approach potential targets. Buyers may seek market access, capacity, technology or other capabilities that fit their strategy.
The Reality of Acquisition Approaches
Being sought out for acquisition could make you feel incredibly significant, but it's important to bear in mind that you are likely one among a list of numerous businesses being evaluated. The reasons are as follows:
Targeted Parameters: Acquirers zero in on businesses that fit their criterions - industry-wise, size-wise and location-wise.
Adviser involvement: Some buyers may prefer a direct process, but their motives vary. Independent advice can help owners assess terms and alternative options.
Exclusivity: A targeted approach does not prove the buyer has selected only your business. Ask about their criteria and avoid assuming that an unsolicited offer is your only option.
Strategy Employed in Acquisition Approaches
Some buyers contact several potential targets at once. Verify the commercial rationale for the approach rather than inferring exclusivity or urgency from the wording of a letter.
Assess the approach on its evidence, not on the impression of being specially selected.
Deciphering Offer Sequencing Tactics
Offers may change as information emerges during due diligence. Distinguish justified changes in assumptions from unsupported renegotiation, and compare the structure as well as the amount offered:
- Opening Offer: A tempting starting offer to capture your interest.
- Due Diligence: A rigorous assessment of your business that could uncover reasons for downgrading their offer.
- Conditional Propositions: Offers hinging on certain preconditions or milestones.
- Final proposal: Compare any revised price and terms with the evidence from due diligence; a reduction is not inevitable.
Conditional offers allocate risk between the parties. Ask what triggers payment or price changes and whether those conditions are within your control.
Valuable Advice for Entrepreneurs
The most crucial piece of advice for business owners contemplating an exit is not to rush into any deal blindly. Seek independent professional advice. Engage skilled advisers familiar with the subtleties of deal origination and offer sequencing. They can facilitate in negotiating the optimum terms, helping you understand the commitments and risks.
Business acquisitions can be demanding. Understanding deal origination and the strategies acquirers use can help you make informed choices. Treat an unsolicited offer cautiously and take professional advice before responding.
Understand your options before deciding. If you would like to discuss your own circumstances, you can request a confidential business exit review; enquiries are reviewed by experienced advisers who can discuss suitable options.
Common questions
Does a personalised acquisition letter mean I am the buyer’s only target?
No. Buyers may approach several businesses with similar characteristics. Ask why your company fits their strategy and what work they have done before treating the approach as exclusive.
What should I check before sending financial information?
Verify the buyer’s identity, decision-maker, commercial rationale and ability to fund a deal. Agree confidentiality protections and stage disclosure, especially where the buyer is a competitor.
Is a lower offer after due diligence always a tactic?
No. New evidence about earnings, liabilities or risk can justify a revision. Ask for the reasons and calculations, then assess whether the change is supported by the findings.
When should I consider granting exclusivity?
Only after considering price, structure, funding and diligence readiness with advisers. Define the duration, milestones and termination rights rather than agreeing open-ended restrictions.
General information from our archive, not personal advice.
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