Handling Unsolicited Offers

Despite recent gloomy reports in the media that imply a depressed tech M&A market, the facts are quite different. The current tech M&A market is actually booming. Factors such as increasing inflation and rising interest rates are encouraging buyers to invest in tech companies rather than hold onto cash that is losing value. In particular, PE firms and venture capitalists, with $3.7 trillion and $300 billion in dry powder, respectively, are itching to make deals. So too are well capitalized strategic buyers. As a result, tech companies are receiving a growing number of unsolicited offers to sell or merge. This might seem like manna from heaven to a company owner receiving these offers. But how a company responds can be the difference between a mediocre deal and an optimal one.

Do not accept the first offer

If you receive an unsolicited offer to buy your company, don't accept it. The following statistics related to tech M&A explain why:

• Only 11% of initial buyer approaches end up in a completed transaction. 89% fail.
• 75% of the time, there's another bidder that will pay more than the first bidder.
• Unsolicited bidders are often "bottom feeders" who are trying to lock you up in exclusive negotiation in order to buy your company cheaply.
• There is a strong global market of potential buyers.

Aside from these reasons, there's the question do you know your company's actual value in the market? Most software company owners do not. And if you don't know the value of your company in the market how can you gauge the unsolicited offer?

Ideally, you want multiple potential bidders to compete for your company. That competition inevitably creates the kind of buyer tension that will result in higher bids for your company.  Here is an example of three Corum clients who received initial unsolicited offers for their software company. After Corum elicited other bidders, each company received substantially higher offers.

The fact that the M&A market is currently full of potential buyers, increases the odds that your company can become the target of this kind of software bidding war. But to do it right, you should seek the services of an experienced professional advisor.

Get assistance from a professional advisor

A professional advisor such as Corum has the experience and knowhow to obtain an optimal valuation for your software company. And with its knowledge of the current market environment, Corum advisors can create the competitive bidding environment that includes the right potential buyers for your company.

Here's a recent example of what the assistance of an experienced advisor like Corum can do for your company. Corum President, Rob Griggs recently sent out introductory emails to 72 potential buyers about a cybersecurity client. He sent the emails at noon on a Saturday. In the first 45 minutes after sending the emails he received requests for Non-Disclosure Agreements (NDAs) from four interested buyers. By Monday morning that turned into a total of 25 NDAs. The client accepted a highly attractive offer to sell within 90 days of going to market. Of course, each situation is unique, but this example illustrates that kind of software bidding war market we're now in and how the assistance of an experienced advisor like Corum can promote an optimal result.

What Corum can do for you

Creating the conditions for an optimal offer requires the right preparation and actions. Even though there's a global market of potential buyers, how do you know who and where they are? How do you contact them? And when you contact them, how do you command their interest? And if you get their attention, how do you handle the negotiations, especially when there are multiple bidders involved? And even if you can do all of these things, how can you do them while still running your business?

It takes experience and knowledge to handle these and other aspects of an M&A. And that's where an experienced advisor like Corum comes in. With more technology companies sold in history, a staff of former software founders and CEOs who have sold and bought tech companies, the world's most extensive knowledgebase of technology companies, and a proven process for getting optimal value for tech companies, Corum can help get you that high-value offer while leaving you able to run your business.

The fact is that while today's intense buying market has stimulated a rapid flow of M&A offers, it's also forced tech company sellers to prepare for a sale within a shorter time frame. That time squeeze has heightened the need for a competent advisor to offload the work required to produce a successful M&A deal.

Over the last few months, a record number of private software companies have contacted Corum because they had been approached by a buyer. By reputation and previous engagements with Corum, these companies recognize Corum's track record of increasing company valuations and fostering deals that are well structured, with minimal taxes, and minimal liability. And one more thing ‒ by not accepting that initial offer and depending on an experienced advisor like Corum to attract multiple competitive bidders, you won't have to worry about being sued by minority owners and shareholders who expect you to try to secure the maximum price for their shares.