I have come across several niche businesses lately where they have received unsolicited interests from potential buyers and this leaves the owners wondering, are there any other buyers for my business? Should I bother with hiring an agent and engaging in a process that could take many months to complete or take the bird in the hand?
If these companies were publicly traded there would be no question. The board of directors of a public company would undoubtedly reject the first unsolicited offer and engage an investment bank to explore alternatives. Assuming normal operating circumstances, a board would not fulfill its fiduciary duty if it accepted the first bid. Due process would require at least an independent fairness opinion, but even this would not assure the shareholders that they will realize the highest share price in a transaction; only a thorough and diligent auction process can do that.
Back to the question at hand; could there be other buyers? When a potential seller operates in a very specialised vertical with only several competitors – that may spread unfounded rumours of the company’s demise as soon as they hear of a possible transaction – it is tempting to go with the bird in the hand. But, as I have noted several times, the best buyer is not likely to be a direct competitor.
The best buyer is likely to be a “platform buyer”. A platform buyer will be interested in the business for one of three reasons, its customers, its personnel, or its technology. As an example, we were engaged to sell a pattern recognition technology company in the field of product quality control. This technology would scan a production line and “kick-out” products that did not meet certain criteria. In this case, the ultimate buyer was the US defence department, who paid a strong premium for the business and then used the technology for facial recognition for national security purposes. Who would have predicted that? … but having approached large technology companies that also served defence contractors ultimately led to this outcome.
The point is, even if you feel that there are only one or two competitors that could potentially be interested in acquiring your company, we can likely find additional buyers that you have never thought of as per the example above. It is extremely rare that we have not been able to source at least several expressions of interest for a company for sale. In the end you only need two interested parties to create that competitive tension.
So what is a company to do? Private companies, where owner-entrepreneurs own majority control can do as they please. This is the luxury of owning a private company. Company owners may not want the hassle of preparing a business for sale or they may feel the value being discussed is fair but, in the end, going to market with an experienced advisor is the only way to secure the best price for your company.