“These guys made a ridiculously low offer for our company. Should we say ‘h— no’, counter, or just ignore it altogether?”
Rob and Sally (not their real names) have been in business together for almost 20 years, even before they were married. Now in their mid-60s, they want to move to Texas to be near Sally’s grandchildren. Rob is excited about the move, too. He has his eye on building a home on one of the area’s finest golf courses.
Though they have not formally started the process to sell their company, Rob and Sally put the word out in industry circles that they’d consider offers. They received a letter from a potential buyer who has a business in Ohio similar to theirs. In his letter, the potential buyer said he was looking to expand into the Southeast. In many respects, this potential buyer looked like the perfect fit. That’s when Rob called me.
I helped Rob and Sally write an overview of their business, including financial history since 2013 and forecast for 2018 and 2019. We also provided a summary of the team that would stay in place once Rob and Sally were gone. Of course, we didn’t share any of this information with the potential buyer until he had signed a non-disclosure/non-compete agreement.
Rob and Sally had an introductory phone call with the potential buyer. His energy and enthusiasm for the opportunity seemed obvious. Rob and Sally were excited to think they might have found the right buyer for their company.
Then the ridiculously low offer came in. When they asked my advice on how to respond, my first instinct was to take the low road and advise them to not even respond, to just ignore the guy. We all know there are bottom feeders out there who try to take advantage of people, and who wants to even deal with that kind? But after thinking about it for a day or so, I met Rob and Sally for lunch and proposed an alternative idea. Complete honesty. I suggested they call the potential buyer and tell him the exact terms they would accept. I further suggested they preface their comments with an explanation they were not interested in a counter-offer or drawn-out negotiation. Exact terms meant exact terms.
Now here is the tricky part of this advice… I had to help Rob and Sally get to a number that was reasonable because their instinct was to shoot high and negotiate down from there. But that’s how amateurs negotiate a business transaction. Having said that, my advice only works if the seller has a number that genuinely represents their walk-away point and that number has to be in the strategic interest of the buyer. We spent a lot of time determining that and preparing an explanation as to why that valuation was reasonable. Simply said, the conversation has to go something like this, “Here are my terms and here’s why it makes sense for you.”
So, what happened? Rob asked me to join him on the call. I listened as Rob thoughtfully explained what they wanted for the company and why they thought that valuation was justified. Lo and behold, at the end of the call, the potential buyer said he learned some things he didn’t previously know that might affect his offer. He said he’d be back with us after the holidays.
Will my advice work? I’m not sure. However, being honest and detailed in explaining your expectations is likely always better than saying “h ___ no” or ignoring the offer.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee.
Tennessee Valley Group
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