Bruce Werner, a specialist in governance, strategy, finance, and M&A at Kona Advisors LLC, delves into the three types of bids that sellers need to understand in the M&A world. The first type is solicited bids, which are received when the seller has purposely marketed their business for sale. This typically involves a banking process or private sale, with a timeline of four to six weeks for marketing materials and three to four weeks on the market before receiving non-binding Indications of Interest.
Unsolicited bids, on the other hand, occur when an owner receives a call to buy their business, even if they hadn’t considered selling. This type of bid can catch sellers off guard, as was the case for a third-generation owner who received an unexpected offer for his business. After months of evaluating options, the owner eventually accepted the offer, only to have his largest customer move the business to Asia months later, validating the need for thorough analysis before making a decision.
Pre-emptive bids are bids made during an auction process to “jump the line” and take the property off the market. Bruce Werner shares a personal experience where his family received a pre-emptive bid for their business that they ultimately chose not to accept due to unfavorable terms. Instead, they ran the full process and ended up with a better outcome. While pre-emptive bids offer advantages such as higher prices and a quicker sale, they also come with risks such as uncertain value and potential lack of serious buyers.
In a current situation, Bruce Werner discusses the challenge an 80-year-old owner faces in selling his 100-year-old family business due to emotional and health reasons. To ease the process, they are trying to generate a pre-emptive bid. While a pre-emptive bid can simplify the sale process and lead to a higher price, there are also risks involved, such as not knowing the true value of the company and the possibility of non-serious buyers. However, if a pre-emptive bid cannot be generated, running a full process can still result in a successful outcome for the owner.
Understanding the process of buying and selling companies is crucial for defining a successful outcome. Setting clear goals and criteria before going to market can help sellers navigate through different types of bids and make informed decisions. For those who have not thought about this process beforehand, receiving an unsolicited bid can serve as a catalyst for pondering these important questions and considerations. By being prepared and knowledgeable about the bidding process, sellers can make the best choices for their business and financial future.
