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Unsolicited Offers: How to React to Maximize Value and Minimize Risk

07/12/2017


Chances are, if you own a successful business, you will receive an unsolicited offer at some point. While flattering that someone recognizes you’ve built something valuable and is willing to pay you for it, an offer can introduce confusion, stress, and uncertainty. The next steps an owner takes are critical to ensure a successful outcome. At MNP Corporate Finance, we ensure you, as a business owner, obtain the best price and best fit for your business.

The following story is based on an actual transaction.

“Dave” was introduced to us by our tax group in November. Starting with a loan of $100,000 and sheer determination, Dave gradually built up his business over an 18-year period to a point where it was generating nearly $20 million in revenue and over $3 million in profits per year. However, he was growing tired of the daily grind and wanted to spend more time with his family, pursue other business interests, and ensure his family’s financial security. A private investor, who had been courting him for over a year, increased their prior offer to buy the business to $12 million: their last “take it or leave it” price.

The Owner’s Next Move

Dave wanted out of the business entirely as quickly as possible. The offer of $12 million would allow him to retire comfortably and he was ready to accept. By sheer luck, he wound up discussing his situation with a friend, a partner at MNP, over dinner on a Friday night. His friend congratulated him and suggested he meet with his tax and corporate finance coleagues at MNP on the following Monday to assess whether the offer seemed reasonable. Dave was hesitant. The buyer wanted to move quickly and did not want him to hire an advisor who would, he was told, “slow the process down". He certainly did not want to lose out on this offer.

Despite his hesitancy, Dave met with MNP’s tax and Corporate Finance group the very next Monday. MNP Corporate Finance studied the offer and quickly identified several problems. Not only was the offer “light” to the tune of a few million dollars, it involved a complex, debt-like structure which meant that Dave could potentially owe the purchase price back to the buyer in a few years! As well, since there was only one offer, Dave had no negotiating leverage. Based on how discussions had been going with the buyer, he was worried that a price grind was inevitable.

Our blunt assessment of the situation was eye-opening. Dave did not know there were other options but he was keen to explore them to ensure he would get the best deal possible. Later that week he engaged us to structure the sale of his business.

The Process

Within several weeks of marketing, we could tell the first unsolicited offer significantly undervalued his business. Interest from potential investors was so high we had to introduce another step in to the process to ensure Dave had to meet with only the top five candidates: those who could add the most value and were willing to pay a fair price.

During these meetings, something else interesting happened. Dave, who originally wanted to sell 100% of and move on to other opportunities as quickly as possible, began to see that the groups we were introducing would add a lot of value. They would find ways to reduce the work load by bringing in fresh resources, add sales channels and new customers, provide growth capital, and eliminate his personal risk associated with guaranteeing loans and other commitments. They also wanted him to focus his energy on the parts of the job he loved thereby allowing the company to grow faster.

Within a couple of weeks of his first meetings, he was reinvigorated and did an about-face on several fronts. Instead of wanting to exit the business as quickly as possible, he now wanted to continue for at least a few years. Instead of wanting to sell 100%, he now wanted to keep a minority ownership position.

The End Result

Dave had the difficult task of narrowing down the field of excellent candidates and choosing one to proceed with. One in particular stood out: they were fair to deal with, understood Dave’s needs and his vision for the business, would treat employees fairly, and were able to add real value to the organization.

Today, Dave works half as much as he used to, enjoys his work twice as much, and remains a shareholder in the business which continues to grow. The original unsolicited offer of $12 million was eclipsed by all bidders.

10 months after engaging MNP Corporate Finance, the winning buyer paid Dave over $18 million: a 50% plus premium over the original unsolicited offer.

MNP Corporate Finance is Canada’s leading mid-market transaction advisor and about half of our deals we close start with an unsolicited offer.

For more information, contact Mike Reynolds, Managing Director at 587.702.5909 or [email protected].