If you find yourself in the position of considering a sale of the company, the significance of the distinction between selling your company and someone buying your company is HUGE. There’s a common saying that “Great companies are bought, no sold“.
Sometimes the situation is clear. If you’re struggling financially and hired a banker to seek a sale for the company, there’s almost no way to pretend otherwise. Conversely, if a powerhouse player in your industry (called a “strategic” in M&A parlance) pays you a visit to talk about their acquisition interest, then it’s pretty clear they have interest as the buyer. But there are various situations that you might find yourself in that should cause you to remind yourself of this significant distinction. Let’s explore further.
The exit valuation for sellers is not optimized unless they can get some competition from multiple acquirers. Either are the deal terms. Contrast this with the valuation and terms proposed by a company that specifically wants to acquire you. Don’t forget this.
If you happen to be entertaining a sale to a “strategic” (a big mover and shaker in your industry) after they approached you, remind the other executives in your company as often as possible that you aren’t selling the company. Rather, ____ is trying to buy our company. Find a way to say a version of this to the acquirer in a diplomatic manner and at the right time.
If the buyer puts a low offer on the table or includes some ridiculous terms in the term sheet, say something like “We are running a successful business that has huge potential and we weren’t thinking about selling the company until you approached us. If you want to buy the company, the valuation and terms need to represent a deal that would cause us to discontinue our current pursuit as a standalone company.”
Many active acquirers become influenced by the frequency of times they negotiate with struggling companies, or even successful ones that get too excited/distracted by the amount of money they will put into their pockets when the deal is closed. This shifts the balance of power to the acquirer. But it can also play to their disadvantage if they don’t realize when they really are the buyer and the seller doesn’t need to sell the company.
The due diligence process an acquirer gets to conduct makes it impossible for a seller to fully pretend like they’re being bought, not sold. But due diligence doesn’t start until after a Letter of Intent (LOI) is signed. So at least during the initial acquisition approach and term sheet negotiations, try not to accidentally come across as a desperate seller. That doesn’t mean you should overly exaggerate or tell lies that will be uncovered during due diligence.