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Receiving an unsolicited approach to acquire your business

See all articlesunsolicited approach for business sale
Business aquisitions
Jonathan Hoe
Jonathan Hoe
Associate Director
July 31, 2019
minute read

How to consider your company value on the spot

Have you been approached to sell your business? You may have been thinking about it already, or you might have already begun formulating an exit strategy. It's an exciting prospect—selling your greatest asset after a lifetime of work.

However, you should be wary of unsolicited offers on your business. By promising a quick and easy sale, savvy buyers could be trying to entice you into accepting far less than what your business is worth. It's a common way for buyers to access sellers at their most underprepared and most vulnerable.

Ready to sell your business? Make Nash Advisory be your first port of call. Our team are here to offer you expert advice and accurate valuation, ensuring that you always get exactly what you're owed.

Our experience

We are always meeting with former business owners who are unhappy about a transaction that occurred in their past. These buyers have often responded to an unsolicited approach from a buyer looking to catch them unawares.

A typical story might go something like this:

  1. James owns a medium sized business. The company makes $10 million in revenue, $2 million in profit per year, has 30 loyal staff, and is $3 million in debt to the bank.
  2. The company is a niche producer of products, with some intellectual property, and a good brand in the marketplace.
  3. The company receives an approach from a large multi-national industry competitor saying that they will buy the business for cash as a quick and easy transaction.
  4. Days later, James has $8 million cash for his business. With a 3 month handover, he will be sitting on the beach enjoying retirement.

In reality, after paying back the bank and paying tax, James has $4 million for retirement.

Months later, James is congratulated for selling his business by Peter. Peter has worked in business sales for 10 years and asks the owner:

  • Did you get a good working capital adjustment on the deal?
  • What kind of legal restrictions do you have for the next 5 years?
  • What multiple of EBITDA did they pay?
  • How were synergies treated?

Upon further reflection, James realises that both he has significantly undervalued the company. The "quick and easy", cash deal for his business may have not been such a smart idea.

Solutions to this common problem

high level valuation

There are many things that James should have done when the multi-national approached him. From the outset, James should have appointed an experienced financial advisory service like Nash Advisory to ensure that the best outcome was always being sought.

  • First and foremost, Nash Advisory would undertake a high level valuation of the company.
  • Nash Advisory would also consider the potential buyer pool and key value factors for a potential transaction.

In most cases, would expect to extract at least 20% more for a business than the original bid, and often up to 50% through transaction structuring. Information sharing and messaging is also critical for extracting value.

The key is to create some competitive tension for buyers. Just like in any other part of the business world, competition leads to higher prices.

What transaction metrics would we expect to achieve?

As James's dedicated advisory service, the company would have been sold for much more were it sold by Nash Advisory. Our exhaustive process may take between 4 and 6 months, instead of a few weeks. In the end, it's well worth the wait.

  • Overall, we would expect James to realise between $10-12 million for the business, depending on whether there were synergies and the potential for an earnout based on growth.
  • Through detailed legal negotiations, James would have lower risks in the future, and greater opportunity to consider new business opportunities
  • Our team would also consider tax planning to deliver James greater after-tax proceeds
  • Instead of James having $4 million for retirement he would have $6.5 million, a 60% increase.

Would you sell your house to the first person who knocks on the door and offers you some cash? No. You would engage a real estate agent, list the property online with glamorous photos, hold open houses, and likely sell via an auction. Why would you sell your business to the first person who approaches?

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