Unsolicited offers for private companies tend to come from strategic competitors, customers or suppliers and private equity as they are actively searching for new platform or tuck-in investments. Rarely, however, do they come from an existing shareholder in a business who wants to buy out the other shareholders. What does the Board need to do in this situation?
Here are three considerations to keep in mind.
Know The Value of Your Business
Check the expectations of the Board. How much is the value of the business? The Board may have a number in their head. What is that number based on? How does that number compare to what the buyer is willing and able to pay? In a corporation, the board of directors is the governing body that assists with high-level direction and helps advance the corporation’s objectives. The Board has a fiduciary duty to exercise meaning that both directors and officers handle their powers for the collective benefit of the corporation and its stockholders. Get a valuation expert involved and understand the current value of the business so that an offer can be assessed for fairness.
The Board Must Be Prepared at All Times
If the Board is in a position to bring other credible buyers into the process quickly, they will gain substantial negotiating power. To accomplish this, the Board and its Management should already be on other potential acquirers’ radar screens making them aware of the Company’s capabilities and the value proposition. When multiple buyers are brought into the process, the negotiating power shifts significantly toward the seller, who can use a competitive process to maximize valuation.
Bring an Independent Financial Advisor Into The Process
Unprepared companies and their Boards tend to assemble requested materials in a rushed manner and answer questions on the go without a well formulated strategy. By bringing an independent M&A advisor into the process, the Company will immediately bring increased credibility and seriousness to the buyer interest, as well as establish a formalized process and create additional options for the Board to consider. Introducing actual or threatened additional buyers into the process will likely result in the initial buyer, in this case the existing shareholder, raising its offer. Other buyers may have acquisition interest at a valuation superior to the insider offer, especially buyers that can realize synergistic values with their business.
If you have questions about an offer or a sale, our team at Objective Capital is ready to help provide answers. Feel free to reach out at (858) 208-3442.
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Disclosure
Objective Capital Partners is a leading investment banking advisory firm whose Principals have collectively engaged in more than 500 successful transactions serving the transaction needs of growth stage and mid-size companies. The executive team has a unique combination of investment banking, private equity, and business ownership experience that enables Objective Capital Partners to provide large enterprise caliber investment banking services to companies with annual revenues up to $250MM. Services include sale transactions, partnering/ licensing, equity and debt capital raises, valuation and comprehensive advisory services. The firm uses a proprietary process to work to achieve maximum company valuation, premium pricing, and high client satisfaction rates post-sale. The firm’s industry expertise is focused on 5 verticals including healthcare, life sciences, business services, technology, and consumer products. Additional information on Objective Capital Partners is available at www.objectivecp.com.
This article is provided for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Objective Capital Partners and BA Securities are separate and unaffiliated entities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC makes no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person.
