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FIRST POTENTIAL BUYER CONTACT

What should a company do when first contacted by a viable potential buyer? Many companies (sellers) will face this dilemma, and there is no ideal answer.

We suggest that you be "open" to some degree, especially if the potential buyer (PB) is real and well- funded or successful. Below are some suggestions which will limit your exposure to being disadvantaged:

  1. Open a dialogue only if you would or will consider a sale. If so, then you are only putting a toe in the water, at least at first.
  2. Determine objectively if you and the firm are ready for the sale process. Are your financials strong? How much work needs to be done to "show well" and command the best deal price and terms?
  3. Do not sign any documents from PB, especially anything not reviewed and approved by your corporate counsel
  4. Do not send any current financial statements. In fact, if you provide any information, it should be at a high level, such as revenues and profits (EBITDA). Your only goal initially is to elicit a price from PB, nothing else. It is only a starting point.
  5. Contact your corporate counsel. Find out if he/she has real-time experience selling a business. If not, and you want to "court" PB, find an M&A lawyer who handles deals in your space and size.
  6. Talk to your lawyers, corporate and M&A, and accountants about hiring a business broker or investment banker. Then interview them.
  7. Continue dialogue with the PB, but let them know you will be represented by a professional team.
  8. If your professional tam says you are not ready for a sale process, find out what specifically you need to accomplish to be ready. If you still have good rapport with PB, let them know your state of mind and potential timing. You do not want to "lead them on" unnecessarily. Remember, this is only one PB. And the odds of the first PB becoming the ultimate buyer are about 20% or less.
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