Received an approach to buy your agency? What to do next

In short: Treat the approach as the start of a process you control. Find out who is asking, why, with whose money and with what authority, before you share anything beyond what is public. Release information in stages under a non-disclosure agreement, and remember that an NDA limits what the recipient may do with information; it cannot remove what they now know. Be careful about naming a price before you have a supported view of value and understand the buyer’s position. Think hard before granting exclusivity on an indicative number. Keep the business performing, because every month of distraction shows up in the figures a buyer will eventually test.

Qualify the approach

Approaches arrive by email, through an intermediary, over a conference coffee or from a client. Some are exploratory. Some are serious. A few are market research dressed as interest. The first job is to find out which, without giving anything away.

• Who is asking. The company, its ownership and, where it is backed by investors, who makes the final decision. A corporate development lead and a founder with a mandate from a board are different conversations.
• Why. The strategic reason: a capability, a client base, a market, a team, scale for a platform. If they cannot articulate it, they have not decided to buy.
• Funding. Cash on the balance sheet, committed debt, an investor who has to approve, or a plan to raise against the deal. The answer shapes certainty and timetable.
• Authority and advisors. Whether the person in front of you can agree terms, and whether advisors are already engaged. Both signal seriousness.
• Timing and history. Why now, what else they are looking at and what has happened to businesses they bought before.

Ask these questions in the first conversation. A serious buyer expects them and respects them.

Two sources deserve particular care. An approach from a competitor, or from a group that owns one, carries the risk that the conversation is partly about learning your clients, pricing and people. An approach from a client, or from a business connected to one, raises the question of what happens to that relationship if the conversation ends without a deal. In both cases, slow the information down and bring an advisor in earlier than you otherwise would.

Intermediaries and buy-side advisors

Many approaches arrive through a third party: a corporate finance firm with a buy-side mandate, a search firm paid to find targets for an investor, a broker who hopes to introduce you and be paid by whoever buys, or a group’s own corporate development team. Ask who they act for, how they are paid and whether they hold a written mandate from a named buyer. An intermediary with a mandate from a specific, funded buyer is a serious contact. An intermediary with a list of “interested parties” who cannot name them may be building a pipeline, and anything you share may be used to market you to buyers you have not chosen.

You are not obliged to work through the buyer’s intermediary, and you should not take valuation guidance from someone whose fee is paid by the other side. Where the approach is real, the conversation moves to principals and your own advisors quickly.

Staged disclosure and the NDA

Share information in stages that match the buyer’s commitment. Public facts and a general description cost nothing. Headline revenue and a profit range come under a non-disclosure agreement. Client names, margins by client, people and forecasts come only when there is an indicative offer worth exploring.

An NDA restricts how the recipient may use information. It does not remove the commercial risk that a competitor now knows your margins, your clients or your plans, and enforcing it after the event is slow and uncertain. Where the approach comes from a competitor or a group that owns one, hold back client level detail until late, consider anonymising client names, and keep the most sensitive material to a clean team if the deal gets that far.

How far to go at each stage is a judgement. The more credible and committed the buyer, and the less directly it competes with you, the further you can reasonably go. A buyer that wants everything before it will say anything about value is asking you to carry all the risk of the conversation.

When the buyer asks for revenue, EBITDA and forecasts, give defined figures on a consistent basis or none at all. A number given loosely in a first meeting becomes the number you are held to.

Valuation expectations and the indicative offer

You will be asked what you want for the business. Whether to answer depends on what you know and where you stand. A figure named early, before you have a clear view of value and before you understand the buyer’s reasons, can anchor the conversation to a number you would later regret, or close it off if the buyer had a higher figure in mind. A well supported view, built from your own numbers, relevant transactions and advice, is a different thing: it lets you respond to a proposal with reasons. Early on, it is reasonable to say that you have not decided to sell and that any proposal should reflect the buyer’s own view of value, while you form yours.

When an indicative offer arrives, read the whole proposal before reacting to the headline. Enterprise value, the adjustments to equity value, how much is paid on completion, what is deferred and on what conditions, what is expected of you afterwards and for how long. Understanding deal structure explains how to compare these properly.

An indicative offer is a basis for discussion. It commits the buyer to nothing. It will be revisited in diligence, which is why your information needs to be right before it is shared.

Testing the market and exclusivity

One interested buyer is a data point. The decision is whether to respond to this buyer alone or to use the approach as the trigger for a wider process. A bilateral conversation is faster and quieter; a competitive process creates competition and a reference point for value. The sale process guide covers both.

Buyers often ask for exclusivity early, sometimes with the indicative offer. Granting it on an indicative number, before the key terms are agreed in heads of terms, gives away your negotiating position at the point you have the least information. If you grant it, keep it short, tie it to a timetable and make it conditional on the buyer meeting milestones.

What not to commit to, and how to keep the business performing

Do not agree a price, a structure, your own role or a timetable in early conversations. Do not send forecasts you have not stress tested. Do not tell staff or clients until there is something definite to tell, and agree the communications plan with the buyer before anyone else hears.

An approach pulls founders out of the business at exactly the moment the business needs to keep performing. Decide who handles the buyer, protect the time of everyone else, and keep winning work. A dip in trading during a conversation is one of the reasons indicative offers get revised, and the one most within your control.

What to do next

Before the second conversation, do three things: define your numbers on one basis, write down what the shareholders would need from a deal, and get a view of value that is not the buyer’s. We do this with founders regularly, in confidence and without documents, and it usually clarifies whether to engage, widen the field or wait.

Written by Rick Palmer and Rob Reid, founding partners of Motion Advisory Partners. General guidance, not advice on any specific business or transaction. Legal and tax points vary by jurisdiction and should be checked with appropriate advisors.