When a small or niche business receives unsolicited interest from key a customer or supplier, this can leave the owners wondering,.. is there another logical buyer for my business? Should you consider hiring an advisor at this point and engage in a sale process that could take many months to complete or take the bird in the hand?
Fiduciary duty to realize the most value
If these companies were publicly traded companies 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.
Buyer Rationale can be Hard to Predict
Back to the question at hand; could there be other buyers for your small or niche business? When a potential seller operates in a very specialized vertical with only a few competitors – that may spread unfounded rumors 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 we 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 quality criteria. In this case, the ultimate buyer was the US defense 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 defense contractors ultimately led to this outcome.
Advisors Know of both Active and Passive Buyers
The point is, even if you feel that there are only one or two other companies that could potentially be interested in acquiring your business, an M&A Advisor 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, even if it is a niche business. In the end you only need a few interested parties to create that competitive tension.
So what is an owner 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.