Another morning. Another coffee.
The phone rings, only this time it’s not any enquiry.
Someone wants to buy a business… your business!
After the initial shock has worn off, reality sinks in. It’s only natural to get excited about the situation!
Next comes thoughts of living it up on a tropical island and making plans for the future.
Being financially secure with your retirement nest egg already in place is the dream. But it’s also a trap to get too far ahead of yourself before finalising an acquisition.
It’s human nature to start thinking about potential benefits right away. But, most people underestimate how long it takes to complete a business sale.
It’s also a situation most people have never been in before.
Sure, you may have dreamt about it.
But when you are in the thick of running a business, it’s generally not top of mind to expect an offer to buy your company.
Finding yourself ill prepared is quite an understatement!
It’s quite common for an acquirer to be someone you already know and like. There is most likely an established relationship and an element of trust in place.
It’s not surprising that initial enquiries are usually from:
- A supplier
- A customer
- A competitor
The supply chain is a notorious channel for acquisition offers.
Because you most likely know the potential acquirer, it's easy to let your guard down in conversations. But remember, while they may have good intentions, in reality, they still wish to receive the best possible deal.
It’s also important to remember that the first offer is usually never the final amount.
As potential acquirers do their due diligence, the numbers tend to go down. By preparing for the due diligence process you can keep the amount from being unreasonably lowered. We’ll cover this in more detail as we go along..
You’ve received a very promising expression of interest, well done!
But before you jump the gun, there’s a long road ahead from initial enquiry to completing the business sale.
The old cliche one step at a time, couldn’t be more true.
An expression of interest is literally only the first step of the process. Most people assume that if someone wants to acquire your business, you need to spring into action right away.
Imagine you’re on the starters blocks. BANG!
Immediately you start sprinting as fast as your legs will carry. The roar of the crowd is deafening. You’re ahead of all the competition. You can see the finish line in sight.
You throw your arms up to celebrate a hard-earned win!
But, the other runners have now caught up to you. Only they aren’t stopping. They keep running at a steady pace, as you watch on from a distance.
An acquisition is more like a marathon than a 100-meter sprint. It's easy to get excited in the moment and feel the adrenaline pumping through your veins.
But you need to be in it for the long haul, as the process is often very lengthy and time-consuming.
Being prepared for an acquisition means:
Most importantly, you’ll be in control.
This means you are far more likely to enjoy the fruits of your labour and finally get your well- deserved payday!
With that in mind, here are 4 key things to consider in preparing for an acquisition.
Perhaps the easiest thing to overlook is mindset. It's also the most important for having a sound exit plan. Get your mind right, be patient, and don’t get too ahead of yourself.
It’s crucial to prepare yourself mentally for the whole process. It's also important to have realistic expectations. This will allow you to deal with many different scenarios which could arise with a level head.
Changing your mindset doesn’t happen overnight, it takes a lot of work, and can often be a long process.
Preparation is key. Not for acquisition, but for everything in life.
If you don’t have a thorough process to put buyers through - they will put you through their process, and that is never going to end well for you.”
CEO, Exit Advisory Group
The first step before entering discussions is to get an external valuation done. This will let you know exactly what your company is worth. Doing so also lets you enter discussions informed and well prepared. It means you won’t waste time entertaining acquirers that make unrealistic offers.
At Exit Advisory Group we take our clients through an Exit Readiness program that involves an internal due diligence process. We step into the shoes of a potential acquirer and scrutinise a client’s business in depth. This is the exact due diligence process a potential acquirer would undertake. Doing this first eliminates any unexpected surprises and lets you defend your valuation.
When people see a brand new shiny car, it sure catches your eye. But all that glitters is not gold. Peeking under the bonnet can show just how much of a mess it truly is.
Well, it’s the same with a business. Your business looks great to a potential acquirer from outside looking in. But when they take a peek under your business bonnet, are they going to have a good experience? This will tell them all they need to know about your business, no matter how shiny and attractive it seems. If you’re not prepared or can’t easily access what acquirers want to see - your financial statements, inventory data, and cost of customer acquisition, then it’s going to undermine your position, leave a bad first impression, and show that you don’t have your house in order.
You are already putting in a considerable effort to get the information a potential buyer is seeking.
Why not invite some more people to the table?
Approaching other potential buyers will give yourself more options. All you have to do is leverage the work you’ve already done.
Having more than one interested buyer works in your favour as it:
- Creates a sense of urgency
- Causes tension between potential acquirers
This is the best outcome possible.
You can still do this in a way that is respectful to the company that made the initial offer.
A man who represents himself in court has a fool for a lawyer.
It's a well known cliche that rings true when it's comes to an acquisition.
It doesn't matter if you are the best negotiator on the planet.
Having an emotional connection will prevent anyone from making logical decisions. It prevents proceeding with a clear mind.
It's recommended to have external representation in acquisition discussions.
Having someone act on behalf with your best interests in mind:
- Lets them ask difficult questions.
- Prevents you from getting distracted (the last thing you want is for your business to take a downward spiral during this time)
- Stops you from making impulsive, emotional decisions
- Eases the awkwardness of discussions with someone you already know.
We see a lot of business sales and acquisitions in Sydney and across Australia not coming to fruition, because of the same mistakes. Mistakes which are easy to avoid.
Here’s an example:
A large supplier from China with a turnover in the billions, contacted a family owned Manufacturing business about an acquisition. The Chinese company were looking to start a local presence in Australia.
Mistake 1: The family immediately got caught up with the idea right after the first discussion. They had an existing relationship with this supplier, so they felt very comfortable moving forward. This led to them taking time away from running the business and resulted in many business trips to China.
Mistake 2: The family had no experience with business sales. They also had no experience dealing with foreign multinational Chinese companies. But they decided to proceed by themselves. At this point, they would have been wise to seek advice from a professional.
It's no surprise they struggled with communication, language barriers and cultural misunderstandings.
Mistake 3: The family were out of their depth in a foreign country, and an unfamiliar environment. They were unable to get a good feel for the Chinese company's intentions. , Despite these difficulties, they soldiered on as they felt they had invested so much time already and hoped to close the deal successfully.
Mistake 4: The Chinese Company had their own process in place for acquisitions, and perhaps they could spot the lack of experience that the family business had in these matters. So they dragged out the process. Requesting all manner of financials, data and other information, in between making lower counteroffers.
The manufacturing business kept providing any information they were asked for. Often having to pull staff away from their work to pull together the information.
Mistake 5: The family had already mentally prepared for their business being acquired. This was done long before they even flew to China. They had already planned their retirement and purchased a home in Tuscany. They needed the acquisition to happen.
After making these mistakes, discussions shifted from the acquisition. After dragging them through a long process, the Chinese company suggested a trial partnership first before committing to the acquisition. They were positioning themselves to receive all the benefits, without actually risking anything.
Finally, discussions broke down. The buyer had total control of the situation while the seller was forced to meet every request.
The family business could have avoided this entire situation.
By having processes to follow, they could have first made sure the Chinese company met specific criteria as a qualified buyer.
Only then would they hand over information, and entertain the possibility of being acquired.
Once the deal didn’t go ahead, the family were devastated and not sure what to do next.
If you’ve received an offer for a business acquisition. Congrats! Now it's time to consider your actions and keep a cool head.
Understanding what your business is worth is the first step in unlocking value. If you know this, you can prepare yourself for a possible future acquisition.
If you’re not ready to sell now, that’s ok, knowing your current value will help you develop a plan to maximise your company’s worth – so when you are ready, you can get a premium price.
Before making any rash decisions, it’s best to talk things through with an expert. Someone who understands the process and has been through many successful acquisitions.
We also recommend you start by doing the VALUE BUILDER SCORE.
we invite you to take the value builder score
This is a powerful bench-marking tool that rates your business against the 8 key drivers of business value. Over 40,000 business owners worldwide have now taken this assessment.
The Value Builder Score shows you what your business looks like through the eyes of an acquirer. You’ll discover what’s silently dragging down the value of your business, or whether you have untapped hidden assets with the potential to increase value.
The great thing is, there’s no cost to take your score and it only takes about 10 minutes to complete.
This is a great way to start preparing your exit strategy.
You’ve done the hard yards; now it’s time to give yourself the best opportunity for a life-changing experience.
Luckily, you don’t have to do it alone.
Exit Advisory Group specialises in preparing people to exit their business, maximise value and negotiate the best possible outcome.
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