A direct approach from a would be buyer can feel like the dream scenario: quick, quiet and with no advisor costs.

But when you’re contemplating a once in a lifetime exit, ‘simple’ can be dangerously expensive. The market rarely reveals the full price of a quality business unless it is asked the question in the right way; through a strategic deal process that ratchets up competitive tension between potential suitors, compelling them to delve ever deeper into their pockets to reach a price your business truly deserves.

Driving Price and Behaviour

Not only is competitive tension the driving force of price discovery, it also shapes behaviours. Buyers sharpen their pencils when they know there are alternatives in play and a timetable to respect. Conversely, when a buyer believes they’re the only show in town, terms tend to tilt in their favour, while they also have motive and opportunity to chip the price in due diligence. Issues that could have been contextualised or mitigated ahead of time suddenly become reasons to haggle furiously. An absence of competition removes a natural barrier to some of the poorer behaviour we come across when completing a deal.

The Important Role of a Corporate Finance Advisor

Of course, you would expect us to say this but you should not enter into a deal process without appointing an experienced corporate finance advisor. While the very act of appointing an advisor can be enough to ensure your prospective buyer behaves appropriately, it’s important to note that an experienced advisor doesn’t just oversee a process; they design the market you need.

You should expect them to position your equity story; map and quietly test the buyer universe; invite participation under NDA; and run a clear, efficient process with defined milestones. They’ll also manage information flow, keep credible options warm and protect your leverage through diligence and legals.

Done well, a competitive process is both focused and respectful of confidentiality. It can be tightly targeted to a handful of motivated buyers, including the party that first approached you. Always remember, however, that the goal is not volume; it’s choice. Choice on price, on structure (cash, deferred, earn out), on warranties and indemnities, on management roles, and on integration plans. Those choices directly influence whether your life after the deal looks as good as the number in the headline.

Be Prepared

Preparation is also particularly important in laying the foundation for success. Pre-sale readiness (clean, coherent financials; a robust forecast; clarity on working capital; tidy contracts and IP; a simple equity and incentive picture etc) reduces the target area for potential for price chipping.

It also accelerates due diligence, affording momentum when it really matters. That momentum, combined with competitive tension, is what converts strong offers into signed SPAs (Shared Purchase Agreements) on the terms you really wanted.

Have Confidence

If a buyer is already at your door, you do not have to slam it shut. Engage courteously, signal that you will appoint an advisor, and invite them to participate in a fair, efficient process. An exit is a significant life event. Invest in doing it properly so you avoid post deal regret and walk away knowing you achieved not just a completion, but the right outcome for you, your team and your legacy.

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Rob Starr is a Partner - M&A at Shaw & Co.

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