I have a client who owns a profitable company. The company has been trading a few years and turnover varies between £1 and £2 million. The company acts as a specialist supplier to other companies and there have been two approaches over the years from customers who have spotted synergies while working with the company.
My client is not averse to selling, so what’s the dilemma?
Timing
Firstly, both approaches have been made during periods of downturn. It is very tempting to sell when the going is tough, and for some companies it may be the lifeline they need to survive but it never pays a seller to desperation sell. You can still get a good price in a downturn if the buyer is prepared to focus on future benefits but if they choose to focus on the deal being a solution to current problems then the price offered in likely to disappoint.
The Bigger Picture
A further complication was in the customer relationship. By participating in due diligence, a lot of confidential information has to be disclosed. If a deal doesn’t progress how would that effect the relationship? The latest approach has been from the company’s current prime customer. They have a perception of the company, not just based on performance, but also on the image carefully cultivated of the company. Like many companies, the window dressing is an enhanced version of the company. The problem is that if the customer had visibility of the extent that the company is currently reliant on their business then not only would it give them leverage in a deal, it may also cause them to decide not to deal and to question the reliability of the company as a supplier.
My client is not desperate to sell but was interested to see what the offer price would be. For the reasons above, my advice was to tell their suitor that they were not looking to sell at the moment but may be interested in the future, thus avoiding due diligence without closing the door completely. This way they have managed to sustain and improve on the relationship between the companies with a lot of work being passed their way as the other side seeks to continue to build the case for a future acquisition. My client continues to build the company and expand the customer base.
At some point it may be the right time for both sides to talk.