Many of the transactions we work on have been instigated by an approach from a potential purchaser
For the purchaser the unsolicited approach represents a great opportunity to secure a good business, for a reasonable price, without the extra transactional risk associated with a competitive bid.
Although flattering to be approached, it is a more common occurrence than you might expect.
So, you have two initial choices; should you involve a professional corporate finance adviser or not? Clearly we would advise on option one, but if you choose to manage this early stage of the transaction yourself, this would be my advice:
Understand who has approached you – what is their motive? Is it genuinely to make an acquisition? If it is, can they afford you? Do not be afraid to ask them questions before progressing.
Do not rush to the next stage – your early actions will set foundations for the nature of negotiations to follow. Put simply, play hard to get! Put the onus on them to make headway. Remember they approached you for a reason.
Put a confidentiality letter in place – I would expect the acquirer to be able to offer one, but it is your information and it should be on your terms.
Share information wisely – to the acquirer, no matter what confidentiality letter is in place, the information you share will be useful.
Always think about value – any information you share, especially any forecasts, can be held in evidence against you in later negotiations. Take time over the presentation of numbers and make sure you present your business in the best possible light.
Never disclose any price expectation – they approached you, it is for them to decide your worth.
If discussions are progressing get professional advice. A corporate finance adviser will help you maximise your negotiating position. They will assist in agreeing a deliverable transaction and ultimately increase the probability that the transaction happens.
If discussions cease, ask for your confidential information to be returned, or for an undertaking that it has been destroyed. Most importantly, part on good terms, there may well be a next time.