888-983-1617 [email protected]

When NOT to Accept an Offer For Your Business

On November 8, Startup Southerner published an article by me about exit strategies for entrepreneurs. Take-away: Be careful about offers to buy your company.

Sometimes “no deal” is the best deal, and sometimes saying this early, before you’ve sunk time and effort into the huge project of responding to interest in buying your company, takes a lot of discipline.

Exits eventually make sense, on your terms, among your choice of acquirers and when you’ve got the business ready. But they can make little sense at other times.

Read the article in PDF.

For many entrepreneurs, landing a private equity deal is a dream come true. It’s a sign of success and a catalyst toward bringing an idea to full fruition. However, despite the excitement and flattery, some private equity deals—as lucrative as they may sound initially—should be respectfully declined.

How does a business owner determine if the offer is a good fit for both him and the company? Here are three factors of a private equity offer that may prompt you to decline the deal:

1. The price isn’t right.

The initial offer may appear impossible to turn down at first, but the value will most likely decrease by the end of the transaction. That’s because a private equity firm will provide the best possible price initially. But as the due diligence process continues, any potentially negative information that is discovered will be given a monetary value, which is then deducted from the original offer.

To be proactive, research any non-attractive elements of your business, such as a decline in revenue from a specific product or weaknesses compared to competitors. Then, calculate an estimated cost for those setbacks. This allows you to provide the private equity firm with any negative information upfront and to foresee what the final offer might look like.

Business owners must also determine if profits will be sufficient. If there is only one owner, is the revenue from the sale enough to pay off business debt and cover her retirement? Perhaps the business is co-owned—would the revenue still be substantial when split equally or proportionately among all owners?

Taxes, attorney fees, distribution of funds and other factors should be carefully considered to make sure each owner is comfortable with the profit he would receive from the transaction.

2. Changing ownership creates difficulties.

The business owner’s exit from or continuation with her company cannot be ignored when thinking about private equity deals. If the owner remains on board, she would likely lose control of the company’s operations. The psychological element of this transition can be difficult. Her opinions no longer carry as much weight as they did before, and she is not involved in the day-to-day decisions of the company she worked hard to build.

In contrast, what is the impact on the business if the owner cuts ties with his company after the transaction? Often, a business owner is the face of the company, and customer loyalty is built upon the trusting relationship he or she has developed with the owner. A business owner should think about how his personal involvement in the company, or lack thereof, would affect the future success of the business.

3. New ownership affects company culture.

A company’s success is built on the business values and culture set forth by the business owner. As such, one of the most important factors to consider when weighing a private equity offer is how new management will affect the company’s culture.

Under new ownership, will employees continue to feel valued and receive the same benefits? Will the owner’s absence deter longstanding customers from doing business with the company? It’s essential that new ownership aligns with the core business values of the original company, or it will be hard to generate long-term success.

Deciding if you should accept a private equity firm’s offer to buy your company can be a difficult process. When considered wisely, it means exploring the tangible elements of the transaction, such as profit, and the non-tangibles, like business reputation and culture.

If the deal doesn’t feel right, graciously decline the offer—and then continue building your company’s success. After all, the next offer could be exactly the one you’ve been waiting for.

3 Signs an M&A Deal Is in Trouble

Read the article in CFO.Spotting signs of trouble early is critical for CFOs to prevent a deal from derailing. Not every CFO will experience M&A firsthand during their career. But those who do typically find that their existing skillset makes them a crucial asset...

4 Tips for Pitching Investors in Today’s Economy

Read the article in CFO.Any company that intends to grow past a certain point eventually reaches the familiar milestone of pitching to private capital sources in hopes of securing additional funding. Those businesses that tend to be most successful are the ones that...

Resolving Conflicts in a Family Business

Read the article in Small Business Current.When family members run a business together, the experience often draws them closer, but there are inherent risks as well. Having years of personal history with one’s co-workers can sometimes lead to non-work disputes...

Oaklyn Consulting Congratulates Proof of the Pudding on Acquisition by Bruin Capital

Oaklyn Consulting congratulates Atlanta-based catering, food service and event company Proof of the Pudding on its recent acquisition by Bruin Capital. Oaklyn Consulting assisted Proof of the Pudding in evaluating potential partners and negotiating the transaction....

Analyzing Broad vs. Narrow M&A Deal Processes

We respect the unique M&A market insights that Sutton Place Strategies, an affiliate of Bain & Company, creates from its business development work with PE firms. SPS Founder and CEO Nadim Malik gave a presentation at ACG Boston's M&A Outlook forum in...

How To Work Through Conflicts In a Family Business

Creating a family business comes with a lot of positives, as well as a lot of challenges. Here’s how to handle those conflicts as they arise. Thanks to The American Genius for having me! Read the article in PDF.Anyone who’s managed a business with other family members...

Takeaways from Axial’s Recent ‘Dead Deals’ Analysis

Those of us who negotiate M&A transactions for, and with, small- to mid-sized businesses know a few hallmarks of the process: For any company, there is a limited universe of buyers. Each buyer's interest is unique, so average valuations are not reliable indicators...

Who We Helped in 2022

At the start of every year, we at Oaklyn Consulting like to look back at the past 12 months to reflect on projects accomplished and lessons learned from our clients. Building on our achievements from 2021, Oaklyn Consulting worked with 34 organizations in 2022 on...

Monty Bruell Interview with Business Radio X

Our Monty Bruell sat down with Business Radio X to discuss succession planning in minority and women-owned businesses. Listen on Spotify or Amazon Music or read the transcript below!INTRO: Broadcasting live from the business RadioX Studios in Atlanta, Georgia, it's...

Succession Planning for Minority and Female Business Owners

For the founders of minority and women-owned business enterprises (MWBEs), succession planning takes on a deeper significance. Our Monty Bruell explains in a guest column for Memphis Business Journal. Read the article in PDF.Any entrepreneur approaching retirement has...