Canada: The Unsolicited Call

You are sitting in your office and the phone rings. The caller says "Hello Mr. / Mrs. Business Owner, my name is so-and-so with XYZ Business Brokers, and I have a buyer for your business". This is an approach used by some unscrupulous intermediaries in an effort to coerce unsuspecting business owners into paying a finder's fee or retaining the intermediary for a sell-side mandate.

But some unsolicited calls from intermediaries are legitimate. Any credible intermediary will disclose the name of the interested buyer, and confirm to the business owner that the buyer is solely responsible for paying their fee. In other cases, the call comes directly from a corporate executive or a private equity firm looking for acquisition opportunities. For those unsolicited calls that are legitimate, it begs the question of what the business owner should say and do, or not say and do, assuming they may have an interest in selling.

Given the unprecedented amount of capital available worldwide, corporations and private equity firms are becoming more aggressive at soliciting potential sellers (either directly or through an intermediary) in an effort to uncover proprietary deals and avoid an auction. In general, sellers get the best price and terms through a well-run auction that engages buyers who perceive significant strategic value in the acquisition opportunity. However, in some cases, business owners can get an attractive deal even where they do not pursue the auction route. Proceeding with a single buyer can offer certain advantages, such as reducing the risk of a confidentiality breach and expediting the sale process, which reduces the amount of distraction from running the business. The key when entertaining an unsolicited call is for business owners to keep their options open to the extent possible, so that they do not compromise their negotiating position.

Control the Process

If a business owner is interested in having discussions with an unsolicited caller, they should be sure to control the sale process themselves, rather than allow it to be dictated by the would-be buyer. Here are the steps that business owners should normally take:

  1. First, get clarification as to why the buyer or their intermediary has called. Determine whether they are calling a wide spectrum of possible sellers, or whether they are being selective. Ideally, the buyer has done some homework and thought about how and why the owner's company would be a strategic fit (e.g. proprietary products, key customers, etc.)
  1. Arrange an initial meeting or telephone conversation with key decision-makers within the buyer's organization. Do not disclose sensitive confidential information. (High-level revenue and general information is usually OK). Rather, place the onus on the buyer to explain the reasons for their interest, understand the buyer's decision process and learn as much as possible about that organization. The business owner should also get a sense of whether the buyer can meet their personal objectives (e.g. the length of a post-transaction management contract) and the cultural fit.
  1. If the owner continues to have an interest, they should retain professional advisors to assist them in the process. Involving an investment banker or other intermediary can facilitate information gathering. The intermediary may also be of assistance in obtaining information about the buyer (e.g. prior transactions they have undertaken). Having an advisor also serves as a subtle reminder to the buyer that the business owner is keeping their options open.
  1. The intermediary will help to secure a non-disclosure agreement from the buyer and provide the buyer with some confidential information. This should not include highly sensitive details (e.g. customer pricing strategies), but should be sufficient to allow the buyer to form an initial assessment of value.
  1. The buyer should be asked for an expression of interest, setting out the price range and deal terms they are prepared to offer, based on the information provided to that point. The intermediary can assist the business owner in assessing whether the proposed price and terms are fair, given the nature of the business and prevailing M&A market conditions.
  1. The business owner and their intermediary will need to carefully assess whether they want to approach other prospective buyers. Approaching other buyers could lead to higher value. However, the delay could result in losing the interest of the primary buyer. Alternatively, if no other suitable buyers are found, it could weaken the seller's negotiating positon with the primary buyer. Some buyers will state that they will not participate in an auction process. This statement should be met with skepticism by the business owner, as it suggests the buyer is only interested if they can get a bargain.
  1. If the business owner decides to continue discussions with the buyer, they will provide the buyer with additional information and a management presentation in order to firm up the initial offer in a letter of intent.
  1. Upon receiving a satisfactory letter of intent, the business owner should then afford the buyer a period of exclusivity to finalize its due diligence, negotiate the purchase and sale agreement and close the transaction.

Pitfalls to Avoid

While pursuing an unsolicited call can prove opportunistic, business owners should be wary of potential pitfalls that could seriously compromise their negotiating position, and the likelihood of securing an attractive deal.

  • Premature exclusivity. Buyers will often indicate that they want a period of exclusivity to enter into discussions shortly after approaching the business owner. Granting exclusivity to any party negates the business owner's ability to pursue other alternatives for a period of time, which impairs their negotiating position. As a general rule, buyers that insist on having early exclusivity are mainly bargain hunters who should be avoided.
  • Feeling pressured. A buyer that finds an interested business owner will often try to rush them in order to reduce the likelihood that the business owner will become disengaged, or that they will approach other buyers. Business owners must ensure that they proceed at a pace they are comfortable with. Business owners should remember that they have something the buyer wants, and a serious buyer will not walk away just because the owner wants to be cautious. The buyer should appreciate that the owner is making a serious economic and personal decision. That said, long delays could cause the buyer to lose interest or pursue other opportunities.
  • Information disclosure. Business owners sometimes become enamoured with the prospect that a buyer may be interested in their company, and they disclose highly sensitive information at an early stage in the sale process. This can be particularly problematic where the would-be buyer is a current or potential competitor. While business owners should have a non-disclosure agreement executed, that agreement does not afford absolute protection. Therefore, business owners and their intermediaries should disseminate information slowly, to ensure that the buyer is serious, and secure a comprehensive letter of intent prior to disclosing sensitive information.
  • One-way street. Business owners are sometimes anxious to find out how much a buyer thinks their company is worth, so they focus on providing the information the buyer has requested. However, the first step should be to understand why the buyer is interested in their business and the buyer's long-term strategy and objectives. This will help to the business owner to assess whether their company will be viewed as strategically important to the buyer. If so, that increases the likelihood the buyer will offer an attractive deal.
  • Not seeking professional advice. Business owners sometimes view an unsolicited call as a way to save money on professional fees, including intermediaries, tax advisors and legal counsel. However, the early involvement of professionals is important, to help the business owner through the process and to ensure they are getting a fair deal. Professional fees should be structured to ensure that the interests of the business owner and advisors are aligned.
  • Losing focus on the business. Even where the business owner does not undertake an auction process, they should not underestimate the amount of time and effort involved in selling a business. It is easy to get distracted in providing information to a prospective buyer and to lose focus on the business, or alternatively to make short-term oriented decisions that can have negative long-term consequences. Not only do these actions compromise the business owner in their negotiating position with the prospective buyer, but in the event that a deal does not proceed, it is important that they be left with a strong business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.