Evaluating Acquisition Offers To-Do List


The tyranny of the urgent imposes itself on family business leaders just as it does on everyone else.  In this series of posts, we will offer various to-do lists for family business directors.  Each list will relate to a particular family business topic.  The items offered for consideration won’t necessarily help your family business survive the next week, but instead, reflect priorities for the long-term sustainability of your family business.

In last week’s post, we explored how to respond to unsolicited acquisition offers.  This week’s to-do list is about being prepared for such offers if and when they come.

Gauge Family Members’ Appetite for a Sale of the Business

Do you know what your family members think about a potential sale of the business?  Would they be aghast at the thought of selling the fruit of great-grandfather’s labors?  Would they be reluctant to sever the economic ties that bind the extended family together?  Or, would they welcome the opportunity to harvest the gains that have accrued through the family’s efforts?  Would they like to diversify their holdings?  Would the thought of being emancipated from the shackles of economic dependence on the family be liberating?  Would your family relish the opportunity to just be a family without the mental overhead of being a family business?

Getting the answers to these questions can be as simple as have a few informal conversations with key family members, or by including questions designed to uncover such preferences in an annual shareholder survey.  Either way, it is best not to assume you know how the family feels.  The best time to get an unbiased view of what the family thinks about selling is before the acquisition offer comes in.

Identify the Attributes of an Acquirer to Whom the Family Would be Willing to Sell the Business

If the family is not opposed on principle to a potential sale, what sort of acquirers would the family find palatable?  As we previously discussed, what sellers want economically is a motivated buyer, whether that is a private equity firm or a strategic acquirer.  However, the family is entitled to have a preference as to who the next owner of the family business will be.  Is the family comfortable with a group of MBAs in a faraway city determining the fate of the business that bears the family name?  What about a competitor that may close certain locations or institute significant workforce reductions?  What would be the impact on the family legacy if the business gradually (or abruptly) melted away into the legacy operations of a larger acquirer?

These questions don’t have right or wrong answers, but the answers will reflect the family’s culture and values.  Having clarity and consensus around these issues now will make responding to unsolicited offers that may be received later less stressful.

Identify Steps That can be Taken to Improve the “Curb Appeal” of the Family Business  

How often have you heard a friend or colleague remark that, after having fixed their house up for sale, they wish they had made the improvements years earlier so they could have actually enjoyed them?  The same regret can apply to family businesses.  The same adjustments that you would make to improve buyer perceptions will likely also make your family’s ownership of the business more rewarding.  So why wait?  Even if you have no plans to actively market your family business for sale, now is the time to clean up the balance sheet (disposing excess or non-operating assets, securing favorable long-term financing, etc.) and fix the leaks in the income statement (expenses that don’t relate to the operations of the business, and other potential “adjustment” items that a buyer will cause a buyer to question the “quality” of your business’s earnings).

Assess Reinvestment Opportunities for the Family in the Event of a Sale

After a sale, the family will have a pile of money instead of an operating business.  What comes next?  Will you distribute proceeds to the shareholders, or will you set up a family holding company to reinvest the proceeds?  What are the implications for the family of reinvesting versus distributing sale proceeds?  What sort of reinvestment strategy is likely to meet the needs of the family?  Marketable securities?  Real estate?  Another established operating business?  Venture capital?  How do the prospective returns on those asset classes compare to the returns you would expect from continued ownership of the family business?

Interview Potential Financial Advisors that can Help the Family Evaluate Offers and Execute Transactions

Do you have an existing relationship with a trusted corporate finance team that can help you when an unsolicited offer arrives?  If not, it is better to shop around for that advisor now, rather than in the heat of responding to an offer that you did not set the timetable for.  A qualified advisory team will have deep valuation and transaction experience.  A great first step in developing such a relationship is having the advisor perform a set of calculations to help establish a benchmark range for evaluating potential acquisition offers.  A corporate finance advisor can also help evaluate potential acquisition opportunities that your family business may want to consider.

The professionals in our Family Business Advisory Services practice have decades of experience helping family businesses evaluate and respond to unsolicited acquisition offers.  Call us to help you get started on knocking out your to-do list today.