I always chuckle when a private business owner says they received an “unsolicited offer.” There is generally no data on the size and profitability of private companies, so what started as an unsolicited approach became an offer through the willing exchange of information.

While the owner may not have been contemplating a sale at the time of the approach, the idea seemed intriguing enough to share sensitive information in an effort to see what an offer would ultimately be.  What tends to happen, is the owner’s only data point for valuation is from a party with completely opposite alignment to the owner.

So, what should an owner do if they are approached and are curious about the market?

Think about what you want to learn.  Do you want to sell your company, or do you have a general curiosity for valuation?  If the latter, there are easier ways to get a more unbiased view of value, including engaging with a valuation firm or speaking with a knowledgeable investment banker. If the specific company presents an attractive home for the business, it is best to seek help before you provide any information.  You do not get a second chance to make a first impression. Having a thoughtful package of information that positions your company in the best light goes a long way to receiving the best valuation out of any group.

You may also wish to use the unsolicited solicitation to approach other logical parties.  A serious buyer will not shy away from a competitive process for a company they like, despite what they may say.  Further, whatever information you prepare for one group will be nearly identical to what any group would need for a serious assessment of the business.

It is important to remember that buyers of companies are very different and have disparate views of value.  In nearly every one of our transactions, the spread between low and high bids can be 2x or more.  While the unsolicited offer may sound high, it is often not the best price a business can obtain.  In our experience, competitive tension is the most effective way to draw out the most attractive offer for a business.

Would you like to speak with someone at RA Capital regarding a sale offer? Get in touch: info@raca.com