As the robust staffing M&A market continues in 2017, more strategic buyers are reaching out directly to smaller competitors to determine if they are open to selling their businesses. While these unsolicited overtures may be flattering, they typically do not result in a transaction being completed at a premium valuation. How you handle these incoming inquiries is critical to not only completing a transaction, but to ensuring that it’s the best possible deal while not becoming a distraction to the operations of the business.
In our conversations with some of the more active buyers in the staffing sector, acquirers continue to cite the lack of quality companies for sale as the primary reason they are not completing more transactions and why they are taking a more proactive approach to sourcing acquisitions. However, as a staffing industry business owner, you need to think about the following questions when and if you are approached directly by someone claiming they want to acquire your business.
- Is this buyer reputable and can they close the transaction? Have they completed prior staffing industry transactions? Do they have the financing secured?
- Will this buyer pay the highest possible total price?
- Is this the buyer that will offer the best possible transactions terms, including the highest cash price at closing, most favorable earn-out terms (if any), lowest working capital requirement, lowest and shortest escrow amount and survival period, most favorable indemnification terms, lowest indemnification cap and baskets, most favorable employment agreements and non-compete agreements, etc.?
- Does this buyer consistently live up to the deal terms as documented in their letter of intent, or do they have a history of renegotiating deals during the exclusivity period? Do they put in enough work pre-LOI to provide a credible offer?
- Is this the buyer that will offer the best cultural fit for your customers, management team and staff?
It may be extremely difficult to determine if an unsolicited buyer is the right fit for your business. So, what’s an owner to do? This is a common situation where working with an investment banker that’s experienced and knowledgeable about the staffing sector can be a great idea. Whether to provide the correct information and negotiate transaction details with the preemptive buyer, or to run a limited market check and contact other known buyers, a sell-side M&A advisor may provide valuable assistance.
Hiring a sell-side advisor should also help you quickly determine whether the unsolicited buyer is credible. Most reputable buyers will welcome the involvement of an investment banker, as experienced bankers greatly accelerate the sale process, serve as an intermediary between buyer and seller, and know exactly what type of information is needed and when in the process it should be presented, all while maximizing confidentiality and allowing the business owner to continue focusing on the operations of their business.
There are various M&A advisors who specialize in staffing industry transactions; therefore, having an existing relationship with one or more of these professionals could be beneficial when a buyer comes calling. How you respond when you receive that initial buyer inquiry may set the tone for all subsequent discussions with that buyer. If handled properly from the outset, you will potentially avoid many of the most common seller missteps when a buyer calls and increase your chances of successfully completing a transaction.