Leveraging a “Deal on the Table”

By Tom Zucker
President

An-admired competitor has just extended you the ultimate compliment, “we would like to buy your business”. The pride of being recognized by your peer and being offered a compelling financial offer is intriguing. They proclaim their offer is fair and the closing process is simple and quick. Seller beware, the pre-emptive sophisticated buyer is skilled at luring a first-time seller into choosing simplicity over value.

EdgePoint’s advice to many of our clients is straight forward and simple, “A Deal on the Table is merely an invitation to the game”. The offer is an acknowledgement of market demand for your business, and that additional buyers will likely have similar interest. The first offer received is rarely the highest and best price that the market has to offer. Competition and company positioning yields the highest price and best terms.

We often advise our clients to accept the invitation to the game. Explore the pre-emptive offer, gain market insight from their competitor, and most importantly invite other buyers to the game. A seasoned and experienced deal maker can quickly identify strategic and financial buyers that would jump at the opportunity to be at the table. While the other party is answering questions and trying to secure deal exclusivity, your team can be busy garnering offers from other buyers. Explore the benefits of having multiple offers.

“Life is not always a matter of holding good cards, but sometimes, playing a poor hand well”

– Jack London

We recently had a client with a “Deal on the Table”. In fact, the client had two pre-emptive offers from strategic competitors with well-funded financial backers. The buyers desired our client’s strong market position, impressive client list, and talented leadership team. The pre-emptive $44 million offers were intriguing to our client. EdgePoint’s assessment of the situation and understanding of our client’s market positioning, led us to advise our client to bring more buyers to the table. After agreeing to engage EdgePoint, we immediately began buyer diligence and efforts to extend their timelines. We quickly added four additional buyers to the discussions and received offers 25% higher than the initial offer. The pace and size of the offers escalated to a final purchase price almost double the initial offer. In less than 60 days, we were able to add more than $15 million of additional purchase price for almost a 40% premium over the initial offers. The final bidder was one of the initial interested parties but with a more compelling price and terms. In retrospect, our client played his hand well and was rewarded for his patience and judgment.

We almost always find that the Deal at the Table was in fact not a deal worth taking. The ability to remove the prideful emotions that come with a pre-emptive offer and to thoughtfully play the game is critical to ensuring the best price and terms for a seller.

© Copyrighted by Tom Zucker, President of EdgePoint Capital, merger & acquisition advisors. Tom can be reached at 216-342-5858 or on the web at www.edgepoint.com.