Bruce Werner of Kona Advisors LLC specializes in governance, strategy, finance, and M&A. He is an author and experienced outside director who helps owners understand the three types of bids in the M&A world. The first type is solicited, which is received when the seller has purposely marketed the business for sale. This process typically involves a banking process or private sale, with marketing materials prepared over four to six weeks, and bids received within three to four weeks.
The second type is unsolicited bids, where owners receive offers from potential buyers even if they had not considered selling. This can lead to unexpected decisions, as in the case of a third-generation owner who received an offer of $75 million for his business, prompting a four-month evaluation process to determine whether to sell. The analysis revealed risks related to customer concentration and industry issues, leading to a decision to accept the offer.
The third type is pre-emptive bids, where a buyer makes an offer before a deadline to take the property off the market and limit competition. While this can result in a higher price, it may not always be the best decision, as illustrated by a family business owner who rejected a pre-emptive bid in favor of a better deal with another buyer. Choosing the right bid involves understanding non-economic terms and running a full process to gauge market interest.
In a current situation, Werner is working on generating a pre-emptive bid for an 80-year-old owner looking to sell his family business in the auto industry. While a pre-emptive bid may simplify the process for the owner, it comes with risks such as not knowing the true value of the company and the potential lack of serious buyers. Ultimately, the decision to accept a pre-emptive bid depends on the owner’s goals and willingness to engage in a full auction process for a better outcome.
Understanding the buying and selling process is crucial for business owners to define a successful outcome before taking their business to market. Setting goals beyond just a monetary value, such as terms, conditions, representations, and warranties, can help owners navigate the bidding process and make informed decisions. Being prepared for any type of bid, whether solicited, unsolicited, or pre-emptive, can help owners achieve their desired outcome in an M&A transaction and ensure a successful sale.