How do you respond to someone who says they are interested in acquiring your business (especially a potential competitor) but won't make an offer until you share your financials and other confidential data?
Do you ask them to make an offer without seeing the books first or share your data, hoping they make an offer, but realizing you're sharing confidential info?
And how do you differentiate serious offers from time wasters who will chew all your time only to either not offer or low-ball after seeing your financial state? Can you get away with saying: "I'm not sharing you anything until you make an offer?" But then how can you obligate them to that?
And what if they are adamant that they won't make an offer until they see your books and do due diligence? I would think that if investors can make a Term Sheet commitment contingent on due diligence, so can you do that with potential acquirers. But they don't seem to see it that way?
Do a step by step approach.
1) Do they want to acquire 100% or only take a majority ?
Then you should go to see a lawyer to get the things right.
2) Ask how much they think your company is worth to them - to have an idea. I had a case in 2013 where we were estimated 10 and one of our competitors only wanted to give us 4. So the discussion stopped at that level. As you mention, they are actually a competitor so they should know how much your company is worth.
This should result in a document called : indication of interest (IOI).Buyer expresses interest in doing a deal by submitting this simple written offer, most often with a valuation range rather than a specific price.
3) Once you agree on this basic number (even if it can change afterwards), you can then get legal assistance to write a prelimenary statement. It depends of the country...
The legal steps (and documents) are :
-> Sign a confidentiality agreement
-> Send/review a confidential information memorandum (CIM).The CIM or deal book is the Seller’s bible and provides all the information (including company history, product descriptions, basic financials, customer info, and more) Buyer needs to determine whether to make an offer.
After that... it becomes a due dilligence procedure.
If you need to ask these sort of questions then the answer very likely is no; you shouldn't disclose such information nor even consider it. You clearly do not have an aggressive aura about you though that does not imply you're not intelligent in your own context(s). More people than not are not worth your time so I would first spend more time about reading online about other people's unsolicited offers to buy their businesses and add the word scam. This will help you clue in to what flags you should be looking out for. If you are a bit more savvy and aggressive yourself then at the very least (presuming there are people more aggressive than you based solely on your post) agree that the offer might actually be legitimate you should require an NDA and possibly a non-compete contract. The non-disclosure agreement is obvious though if they're not willing to sign a non-compete (and some may agree to it as passively as possible yet hold off on actually signing it to see if they can gauge you for the information they're seeking) then kick them out and you must hold fast. If they want to buy your company and they are competitors they likely are willing to pay you more than you think (unless you over-value your entity). You might actually be in for a legitimate offer though you should be honest about the NDA and non-compete agreement. I'm not a lawyer though I can tell you're not as aggressive as others I've seen so you should be more cautious and hold your ground as that is what will either keep your business healthy and growing or your exit out if that is the path you choose.
My hunch is they have some number in mind already and I'd ask them to at least tell you what the ballpark is that they're thinking. If not, I'd ask them how they're going to value your company, ask them what multiple of your profits or revenue they are willing to or typically pay for similar companies and then decide if those numbers make sense. At least then you know if the eventual sale price would satisfy your needs. And ask what else they're valuing in the offer price...size of your customer base? Pending deals? Social media reach? What else is valuable to them and how do they value it? Then, if you have a number in mind, multiply it by 25% or so and ask them to put in writing that if your company meets certain conditions, that they are ready to buy, perhaps even putting the money in escrow to guarantee it.
Then I'd ask what similar acquisitions they've made recently and do your own due diligence to see if they're legit and serious. If any of that puts doubts in your mind about the sale meeting your needs or going through, then probably not worth going further. If it does, then I think you need to trust your gut (and get them to sign a non-disclosure), and consider what might happen with your financial data if they do see it...are they a direct competitor? Is the risk of them seeing it and NOT acquiring too great?
It's tricky on both sides, but if they're not willing to answer any of those questions well, I'd politely decline.
If you do move forward, I'd recommend a straight cash deal at best, don't finance a sale or allow them to make payments over time unless you have the right to regain all ownership if they miss a payment. Even then, though, they could ruin the business and hand back something that's worthless.
No one does an acquisition sight unseen. Like buying a car, one must lift the hood, check the engine, and kick the tires before making an offer. And even the target may not be what it seems. I have a current Euro client whose CEO swore on the annual growth exceeded so much percent annually. Only to discover at looking at the financials and seeing that its sales were shrinking. But like the car or my Euro client, see how much your company is worth prior to getting into negotiations and due diligence to make sure you have realistic expectations. I have seen the opposite -- over valued the company and the acquirer walks away.
Maybe I misunderstand the question. Given the concerns, the easiest way to determine the initial interest by an acquirer is whether it has employed legal/accounting firms for due diligence. Normally, whether for M&A or Equity Investments, the target should receive a list of due diligence deliverables from the legal/accounting firms. Of course this is after the breakup fee/NDA/non-circumvent agreements are executed. I would be suspicious if the standard process has not been followed. And I would shut down the whole thing.
Walk away. Especially if it is coming from your competitor.
Reason is simple, if they are your competitor then they should roughly know what you are really worth because both share the same space; otherwise they are just fishing for information.
Walk away renee
Really? At some point you must provide a) financials and b) IP ownership if you need to pursue this path. You don't have to. However, in the world of M&A, you protect yourself with NDAs and Breakup fees to discourage not doing the deal (note that where the company is incorporated has an impact on the legal precedents). In other words, if they back down, you get awarded a fee to recover your legal costs, etc.
Breakup fees can run into billions of dollars. It certainly shows whether the acquirer is serious.
Now that I saw that you have operations in Russia, it now depends where the acquirer is located. I have dealt with Russia operationally and the level of due diligence is different from my meetings in Moscow.
It really comes down to how serious they are. If I was in your shoes, I would get a letter of intent in place (LOI) that includes all types of confidentiality clauses to protect whatever information is being shared.
In addition I would also include a breakup fee. This way in the event they wish to pull out of the deal they need to pay a price for wasting your team's precious time. This clause should filter potential bad actors that may have a different agenda.
In any case, I would highly recommend that you get some guidance from a good corporate lawyer that has experience with doing M&A transactions.
Hi. I have not participated in a small business acquisition (so take this with a grain of salt), but I think it's safe to assume no serious business entity can make you a serious offer without first getting dirty digging through your financials. In this case, I think it's incumbent upon you to do a little due diligence to see if the person reaching out to you is on the up-and-up and then you can have a conversation to see if you "general ideas" about what an offer should look like align. At this point, you may want to share some top line numbers to give them a sense of your business. If you agree to move forward, protect yourself with a confidentiality agreement before handing over all the detail. To that end, I would seek the advice of a lawyer who specializes in these type of deals to make sure you protect yourself and any IP. Good luck!