Episode 48: Secrets to Responding to an Unsolicited Offer
by Collective 54

How you manage unsolicited interest in buying your boutique will impact your ability to exit.  On this episode, we discuss how firm owners can capitalize on inbound interest.   




Sean Magennis [00:00:15] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I'm Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case that how you manage unsolicited interest in buying your boutique will impact your ability to exit. I'll try to prove this theory by interviewing Greg Alexander, Capital 54's founder and chief investment officer. Greg has helped many firm owners to capitalize on inbound unsolicited interest. Greg, good to see you. Welcome. 

Greg Alexander [00:01:05] Thanks, Sean. Good to be here, today we're going to teach everyone how to play hard to get. I should I should have invited the fabulous Brooke to the show. 

Sean Magennis [00:01:16] The fabulous Brooke is Greg's wife. Did did she play hard to get, greg?

Greg Alexander [00:01:20] Oh, yeah. When we met, she was cheering for the Dallas Cowboys, and I was one of many trying to get her attention. Gaining her to say I do was very hard and one of my greatest accomplishments for sure. 

Sean Magennis [00:01:33] And my guess is you're going to suggest to our listeners today that they should also play hard to get. Is that correct? 

Greg Alexander [00:01:39] I sure am. And let me tell you why. Firms run by those listening to our show are growing nicely in this gets noticed. Private equity firms, as an example, have raised an enormous amount of capital and they need to deploy it. Therefore, they have built and run their own business development function. Dozens, if not hundreds of employees dialing for dollars, calling owners of firms to see if they might be open to selling up. They're kissing a lot of frogs. The mistake owners make is they are unaware of this. They get some calls and they think they are special. They get excited that someone might be interested in buying the firm and start coughing up way too much information. Way too early. They do not play hard to get. And the things they say on these early calls cannot be unsaid. The result, lots of blown opportunities to sell. 

Sean Magennis [00:02:36] Makes total sense Greg. So how should an owner of a boutique manage the interest from these potential buyers? 

Greg Alexander [00:02:44] OK, so now we're talking. The key word here is manage. The first thing to do is to shut up. Take the call and just listen. Be super careful not to reveal too much information, to not get a swelled head. Realize that your firm is one of many names on a list that some BD guy is calling off of. It is great you got noticed and you made the list. But there is a long way to go from here. Do not overreact. 

Sean Magennis [00:03:13] Okay, then what? So where does the manage part come in? 

Greg Alexander [00:03:19] Next, I recommend creating some competitive tension. The fact that inbound calls are coming in suggesting you might have a firm others are willing to buy. Most of us do not marry someone after the first date. We go on a few more dates with different types of people to learn what we like and what we do not like. In this case, this means talking to other potential buyers and playing the field, so to speak. 

Sean Magennis [00:03:47] That makes sense, Greg. But our listeners are time starved. How are they going to make the time to do this and still run the business without distraction? 

Greg Alexander [00:03:57] Great question. The answer is they are not. They're going to hire someone to do this for them. And this person is a professional known as an investment banker. For those unfamiliar with this title, an investment banker is a person who represents you the potential buyers because they do this every day. They have relationships with the most accurate of the potential acquirers. You hire them and they generate interest in your firm, i.e., they get you more dates. 

Sean Magennis [00:04:29] Okay. So many of our listeners of first time entrepreneurs are going through this process for the first time. They likely do not know how to choose an investment banker. Any ideas on how to find and pick the right ones? 

Greg Alexander [00:04:47] Sure you will not have trouble finding them as there are lots of them. In fact, Collective 54 does this for its members. And that could be a quick way to get the proper introductions. As for which one to choose, here are some criteria to consider. Number one, look for a banker with relevant transaction experience. Someone has sold firms like yours. Number two, look for a banker who sells firms similar in size to yours. They will not waste time pitching to the wrong buyers. Number three, look for a banker with a demonstrated track record of closing deals. Stay away from bankers with lots of broken deals. A broken deal is one where the firm hires a banker and they fail to find a buyer. Number four, look for a banker who can explain the exact process they follow when building a wide and deep buyer pool. This is their primary function and get really specific here. Number five, dig into their valuation range. They are going to give you a range as to what your firm is worth. Understand the logic used in the algorithm. Number six. Lastly, be sure to meet the team. Who's going to do the work? Sometimes a big shot partner pitches the business. But once you sign in, never see them again. 

Sean Magennis [00:06:12] This is absolutely excellent, Greg. And so practical. Thank you. 

Sean Magennis [00:06:20] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members. 

Kevin Gray [00:06:46] Hello, my name is Kevin Gray. I'm a principle owner of Veracity Capital. We provide leaders with confidence who are first time wealth creators across the U.S., including long tenured company execs to the entrepreneur. These clients seek help with managing their wealth, their risk and their personal support team in order to preserve and grow their purchasing power through the multiple generations of their family. We solve this problem by time together investment management, tax planning and risk exposure. If you need help with confidence in your portfolio or estate visits at VeracityCapital.com or reach out to me at kevin.gray@veracitycapital.com 

Sean Magennis [00:07:23] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com. 

Sean Magennis [00:07:39] This takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm, our preferred tool as a checklist. And our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions in this instance, if you answer yes to eight or more of these questions, you are prepared to manage interest in buying your firm well. If you want to know too many times you are likely to scare potential buyers away by improperly managing interest. 

Sean Magennis [00:08:22] Let's begin. Number one, are investors inquiring about buying your firm? Number two, are you making a good first impression by not divulging too much information too early? Number three, have you created the appropriate amount of competitive tension among the buyers? Number four, do you know who the right investment banker is for you? Number five, have you hired them? Number six, do you have a realistic market based price in your mind? Number seven, have you waited the appropriate amount of time before suggesting a price? 

Greg Alexander [00:09:15] So that's a trap. Someone calls you interested in selling your firm, my firm's always for sale for the right price. What's the right price? Boom. You drop a number of them and you can never come back from that. So you don't give up a number too early. 

Sean Magennis [00:09:29] Great point. Number eight, do you understand the typical deal structure for boutiques like yours? Number nine, are you prepared to engage and let prices drift up over time? And number ten, have you hired the best attorneys and accountants to complete the transaction? 

Greg Alexander [00:09:50] Often overlooked. But for example, taxes are a big deal here. It's not what you sell for, it's what you keep. So, you know, don't skimp on those other two items, attorneys and accountants. 

Sean Magennis [00:10:01] Solid advice, Greg. Thank you. In summary, you only get one chance to make a first impression. Do not overreact when the phone rings or the e-mail box fills up. This is just the first step in a long journey. Be extra careful to avoid the common mistakes made by first time boutique owners.

Sean Magennis [00:10:25] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander's book titled The Boutique How to Start Scale and Sell a Professional Services Firm. 

Sean Magennis [00:10:37] I'm Sean Magennis. Thank you for listening.