High Rock Partners is a sponsor of the NCBA Business Law Section’s 2019 Business Law Institute and Annual Meeting. A boutique firm of strategic and M&A advisors located in Raleigh, N.C., (in the RTP area), High Rock serves leaders of emerging growth and middle market companies. We assist owners and management in selling their company; making acquisitions; making key strategic decisions; navigating and executing on transitions of ownership; accelerating growth to the next level; and to re-position their company to optimize performance.
Repeatedly we talk with private business owners confronted with an unexpected offer to sell their business… let’s call these “unsolicited offers.” Many times, they haven’t really thought about a succession or exit plan nor have they prepared for a deal if they so desired. Usually the owner of the company or one of their advisors (i.e. attorney or accountant) reaches-out to us for assistance.
Typical questions that we field in these discussions include –
How much is my business really worth?
Is the timing right to sell my company?
If I want to respond, what information should I share?
How do I control the competitive risks of engaging with them?
How do I know that what they are offering is the best deal for me?
What are my real alternatives and options?
Should I negotiate only with this potential buyer or should I try to bring other buyers to the table to create competition?
Who on my team should the buyer be talking with?
…. and the list goes on.
Many owners focus exclusively on valuation, missing the forest for the trees. Evaluating an offer (unsolicited or otherwise) is about a combination of – – valuation AND deal structure AND timing.
Over the years, we have developed a streamlined process to help management, owners and their advisors sort through these and the other usual questions to determine a path forward. One element of that process is to quickly assess the strategic relationship of that buyer relative to our client’s business and industry… and gauge the likely value they can achieve by owning our client’s company. In other words, can the buyer likely realize significant value from our client’s company AND afford to pay at the upper-end of the valuation range? This involves answering the question: “is there a compelling strategic reason for the buyer and our client to do a deal today”? We evaluate this in connection with the recent historical and mid-term projected performance of the business.
From that last question, you see that we must first determine what is the market valuation range and have a defensible rationale for our numbers. This involves looking at the value of the company from a number of perspectives. To some degree, we are projecting what value our client’s company would command if we were to run a competitive process.
The next step involves understanding the deal structure that will work for the specific type of company being sold, thinking about both the business needs post-closing and the structure that will optimize the after-tax cash to the seller. Deal structure is usually critical to how and when the seller is paid, and how much is retained after transaction costs and taxes.
Equally important to these financial and deal topics in a transaction, is the preparedness and maturity of the operating team… these are the folks that will be with the company after the closing. So many businesses today are purchased (or NOT purchased) because of the quality and talent of the people.
I realize that I’ve just scratched the surface for this topic. My business partner, Buddy Howard, and I generated an easy to read primer called Value Levers: Increase the Value of Your Business From 3X to 7X. We wrote it for CEOs, CFOs, leaders and advisors of middle market businesses. Though we live in Raleigh, North Carolina… the concepts we speak to are relevant to most privately held middle market companies regardless of location or industry. This short book should be of value as you think about exit strategies, succession planning and being prepared for an M&A transaction.
https://ncbarblog.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00Businesshttps://ncbarblog.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngBusiness2019-02-11 10:31:092019-02-11 10:37:39Responding To an Unexpected Offer To Sell Your Company