For businesses that succeed and become an intimidating presence to their competitors, there is a good chance that one of those competitors will seek an acquisition at some point. After all, if a company cannot compete with its main rival, then it is clearly a smart move to join them. But, it can be a bit jarring for a company’s leadership team when they find out that one or more of their market challengers are interested in pursuing a purchase of their entity. The initial thought may be that there is something untoward brewing, with an understandable gut reaction to run as far away from the situation as possible. Of course, there very well may be good intentions behind the interest and a perfectly reasonable offer coming down the pipeline, so company leaders need to think twice before completely balking at the prospect. Here are some tips on what to do when you receive an acquisition offer from a competitor:
Investigate Their Acquisition History
One of the first things to figure out is whether the interest in acquiring your company is genuine. If the competitor alleging an interest in your business has a history of acquiring other entities, then there is a good chance that it is simply a part of its business strategy. Of course, if it is the other company’s first foray into the acquisition world, this does not mean that it is just some ploy to scope out its competition. Unfortunately, there are some companies that may pretend they want to acquire their competition so they can start digging around and get good insight on what they face in the market. The key is to find out whether there is a sincere desire to acquire your business by directly asking about their history and intentions. It would be foolish to begin divulging important information without knowing whether the deal will actually go forward.
Ask for Their M&A Team’s Information
An easy way to determine whether your competitor is really vying to close the deal is by asking for their M&A team’s information. Hopefully, any company that is pursuing an acquisition with good intentions will have all the key professionals on board before taking any steps toward negotiations. There will usually be bankers, legal counsel, accountants, analysts, and negotiators involved well before a deal begins to take shape. If there is not or if the competing company is unwilling to share this information, the offer may not be legitimate.
Have Everyone Sign an NDA and Establish a Fee for Deal Failure
In the event that your company decides to entertain a prospective offer, sensitive information should not be exchanged unless and until all parties sign a non-disclosure agreement to ensure adequate legal protection. For the most part, it is pretty hard to avoid providing the other side with financial and operational information. As a result, to ensure that the other party does not try to use this information to its advantage and to your company’s detriment, it is necessary to proceed cautiously. It is also a good idea to establish a fee for deal failure, as willingness to pay a financial penalty will help further demonstrate the party’s sincerity in making the deal happen.
Request the Share Purchase Agreement Early
The share purchase agreement will include the major provisions of a deal, and given that it may end up differing significantly from the original letter of intent, it is important to review and negotiate this document as early as possible. There is no point in preparing for due diligence or divulging sensitive information if the other side is asking for terms that your company will not be comfortable accepting. And, if the other side is unwilling or unable to furnish its requested terms and conditions early on, then it may be a sign that it is not entirely committed to the deal.
Suggest Streamlining Due Diligence
In general, a competitor should already have a fairly good sense of how your company is faring, so a rigorous review likely is not required. Although due diligence will still be necessary in some form, it should be possible to at least simplify and shorten the process, and companies should not be afraid to ask for this.