Dealing with an Unsolicited Offer: Is it Too Good to Be True?
When an unsolicited offer to buy your business lands in your inbox, it can feel both exciting and overwhelming. Is it a golden opportunity or a potential pitfall? As someone who has navigated numerous deals in the small-to-mid-market space, I want to share insights to help you evaluate unsolicited offers with clarity and confidence.
How We Support Business Owners at Portage
At Portage, we specialize in helping business owners prepare for and execute successful exits. Ideally, clients come to us a few years before they plan to sell, giving us time to discuss the exit process, market trends, and strategies to enhance their business’s value. We also help them build a strong deal team for when the time comes.
Even if you already have a buyer at the table, we can step in to provide support with valuations, negotiations, or even financing assistance.
Additionally, our team can help you put the right deal team in place (tax advisor, M&A lawyer, wealth advisor, etc.) to ensure you’re fully prepared for the road ahead.
The earlier you begin planning your exit, the better positioned you’ll be for a successful outcome.
What Does a Typical Unsolicited Offer Look Like?
Unsolicited offers are often the result of mass outreach campaigns. The most common approach involves search funds or buyers sending hundreds of emails or direct mail to business owners within a specific industry.
During the pandemic, for example, HVAC businesses were a major target. Buyers would send letters claiming to offer top dollar for a roll-up strategy in the space. While these offers might look promising, it’s important to remember they’re part of a numbers game, hoping one or two business owners will bite.
Just because an offer seems exclusive doesn’t mean it is.
The Short-Term Risks of Unsolicited Offers
Low-ball offers are just one of many risks. Based on my experience, here are a few others:
- Lack of Buyer Vetting: In a traditional sale process, we carefully vet potential buyers before introducing them to a client. With unsolicited offers, sensitive business information may be disclosed to unvetted buyers who could lack financial capacity or serious intent to close.
- Wasted Time: It’s easy to get excited about an offer and invest months working with a buyer, only to realize they’re not committed or qualified.
- Lost Opportunities: When you engage with just one buyer, you miss the chance to create competition, which often leads to better deal terms.
Before diving into an unsolicited offer, it’s crucial to approach with caution and conduct thorough due diligence.
Loss of Control and Strict Timelines
Providing exclusivity to an unsolicited buyer can put you at a significant disadvantage.
When you give a buyer exclusive access to your business, they dictate the timeline, consuming your time and attention—time that could be better spent running your business. Worse, the success rate of such deals is low, often under 15-20%.
Maintaining control over the process is essential to avoid distractions and missed opportunities.
How to Vet Potential Buyers
One of the most critical steps in handling unsolicited offers is vetting the buyer. Here’s how we approach it at Portage:
- Ask for References
A credible buyer will provide references from previous deals. Ask questions like:- Were they reliable?
- Did they stick to their commitments?
- Did they attempt to renegotiate during due diligence?
- Leverage Professional Networks
As a member of the Cornerstone International Alliance, we collaborate with partners to verify a buyer’s reputation and capability. - Confirm Financial Viability
For new buyers, ask for bank documentation confirming their ability to finance the deal. A conversation with their banker can also reveal whether funding might pose a challenge.
These steps help weed out unqualified buyers and protect you from unnecessary risks.
The Long-Term Risks of Accepting an Unsolicited Offer
Accepting an unsolicited offer without proper preparation can have long-lasting consequences:
- Leaving Money on the Table: Without a competitive process, you may sell below market value.
- Performance Risks: If the buyer underperforms after the sale, deferred payments like vendor take-back financing (VTB) could be at risk.
- Reputation Damage: A poorly vetted buyer might mismanage the business, negatively impacting employees, customers, and suppliers.
A rushed decision today can lead to regrets tomorrow.
3 Key Questions to Consider
Before engaging with an unsolicited offer, reflect on these critical questions:
- Why You?
- Why is your business on their list?
- How many similar letters did they send?
- Are You Prepared?
- Do you know your business’s value?
- Are you ready to have this conversation?
- What’s the Alternative?
- If this offer hadn’t come along, how would you approach the sale?
- Would this buyer even be on your list?
By taking a step back and evaluating these questions, you can avoid making impulsive decisions and focus on what’s best for your business.
Final Thoughts
Unsolicited offers can be tempting, but they’re rarely as straightforward as they seem. At Portage, we’re here to help you navigate these offers with confidence. Whether it’s evaluating an offer, preparing your business for sale, or ensuring you get the best deal possible, our goal is to empower you to make informed, strategic decisions.
Have you received an unsolicited offer and aren’t sure how to proceed? Let’s connect and explore your options together.
Jim Friesen, MBA, CPA, CM&AA
Founder + Partner
