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. 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. Similarly, if a powerhouse player in your industry (called a “strategic” in M&A parlance) pays you a visit to talk about acquisition, then it’s pretty clear they have interest in buying the company. 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 very attractive unless you can get some competition from multiple acquirers. Either are the deal terms. Contrast this with the valuation and terms from a company that specifically wants to acquire you. Don’t forget this. If you happen to be entertaining a sale to a “Strategic” (a mover and shaker in their 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. Even say it to the acquirer in a diplomatic manner and at the right time. If they put a low offer on the table or include some ridiculous terms in the term sheet, say something like “We are running a successful business that has huge potential and were not 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.”
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 puts the balance of power with 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 acquirer might delay negotiations on some critical items to the end of the process. They would do this with the expectation that the seller will concede to whatever the acquirer is asking for just to make sure the deal gets done. If the balance of power is instead truly with the seller, it will be the acquirer that is faced with concessions if they want to get the deal done. I have been a part of such a negotiation and it was a beautiful thing to experience.