In my advisory work, I have been called several times by nervous and overwhelmed founders who have been approached unexpectedly by a potential buyer.
The typical questions I get are:
“X has approached me, and I have agreed to a meeting/call. Should I cancel the call?”
“I’m worried that I will give confidential information away. What should I say when asked about company specific details like financials, etc.…”
“What shall I say if asked how much I want for the company?”
“My co-founder is pushing me to sell, but I’m not sure I want to sell now. Shall I still meet with the potential buyer?”
“I don’t want to mess this up. Neither in underselling my business nor to piss them off and come across as unprofessional. The last time I was in such a situation, I refused to answer any question they had – it was very awkward. How do I best prepare for such discussions?”
What is the best way to react as a founder in such situations?
Well, it depends.
- If you don’t want to enter into any sales process, it is easy – kindly let them know “not now”. Assuming their outreach is genuine and professional, and you like them, then it is worthwhile to stay in contact. If you are considering selling your business in the future, it is very valuable to tap into established quality connections. Continuously building and nurturing a quality network of potential buyers pays off in the long run.
- If you are already running a sales process, it is easy – follow the agreed-upon process with your M&A advisor and/or legal or accounting team.
- If you are unsure whether you should consider entering an exit discussion at this stage – that is the most difficult situation. This can happen if:
- you are unsure about the future strategy
- you and other stakeholders (board, co-founders, shareholders, executives) have opposing opinions about the strategic future direction of the business, including the timing of an exit and valuation expectations
- you feel you and your business are not ready to enter an exit process
- you feel personally unprepared in handling such discussions
If you fall into the 3rd category, here are some practical steps to handle such situations.
- Get internal alignment. Until you have reached alignment amongst the key stakeholders in the business, do not hold such meetings. You don’t need to agree internally on all the details at this stage. But key points like the timing of an exit, valuation expectations as well as what type of buyer will best suit to continue the mission and ethos of the business.
- Prepare for the meeting.
- If you don’t know the other person who reached out and you are meeting, then do extensive background research. Check them out online, study the business they represent, and identify shared connections you could quiz. Try to find out if the potential buyer is serious or just sniffing around.
- Prepare a list of questions. Most importantly, try to understand the motives of the outreach, the business, and the key players.
- Determine what company information you are willing to share and what is appropriate at this stage.
- Know who will be in the meeting. Typically, the first discussion is informal and ideally one-to-one between CEOs or, depending on the type of potential buyer (size of the business and/or PE company), senior executives. If you are invited into a first discussion where you, as a founder, are on your own, and there is an entire team on the other side, then be wary. It is best to insist on an informal one-to-one meeting with the right person first.
- Set the right expectations in an email. Make your position clear in an email before your meeting. The message should be along the lines: “We were not considering entering into strategic discussions right now as we are committed to continuing to drive our business forward. As you reached out, I want to understand your motives and thinking as to why you believe we should be talking about M&A.”
- When you are in the meeting, don’t turn into a seller. With the internal alignment and pre-meeting preparation, you will have all the clarity you need to have a meeting with confidence. Being prepared and having heightened confidence in your position should prevent you from falling into the trap that many fall into: they turn into sellers. Typically, comments like “have not planned to sell the business, but all depends on the price you are offering” or “everything and everybody has its price” weaken your position. Also, it should be you doing most of the questioning and them the talking. If they bombard you with questions and try to pressure you to give too much confidential information you feel comfortable with, then stop them and remind them that ”we are committed to continuing to drive our business forward. I agreed to this meeting as I wanted to understand your motives and thinking as to why you believe we should be talking about M&A”. And then proceed with your prepared list of questions.
Another word of warning: Don’t lie. In such a situation, I have experienced many founders who start inflating metrics or numbers, starting from the size of the team to totally inflated revenue/growth/profitability numbers. Yes, as a founder, you will always present your company positively. But lying about the basic fundamentals of the business can easily be found out with basic research. Just be upfront if you don’t want to share any specifics and/or give indications/ranges instead of the exact numbers. But don’t lie.
- After the first meeting, follow up in writing, making your position clear again. Depending on what has been discussed and (if you deem it worthwhile) include them in your network for potential future discussions and agree on regular catch-ups. If the meeting went so well that you think M&A discussions are of interest, then make sure you have your advisory team ready to lead the process.
Always remember that you are in control. Handle such situations with confidence, which comes from being prepared, knowing what you want, and being in internal alignment. Don’t turn into a seller, which will considerably weaken your position, unless you have to sell the business, let them remain the buyer.
Such discussions are also a great opportunity to build a network of future potential strategic partners and to evaluate your exit readiness.