Nicholas Nickoletopoulos was surprised to receive an unsolicited bid for his company in 2016.
Even more shocking for the president and chief executive officer of Urecon, a pre-insulated pipe manufacturer based in Quebec and Alberta, was the fact that a second offer arrived less than a month later.
Both offers were from large public companies looking to add the mid-sized company to their operations.
Nickoletopoulos had always thought that he was the one that was going to be buying out other companies. “Our strategic plan was to be an industry consolidator,” he says. “We had the money, we had the manpower and we had the management team.”
Whether you’re caught off guard by a surprise bid, or you’ve let the market know you’re up for sale, your next steps are vitally important.
Assemble your team: Having the right professionals on board will help you get the most out of the potential transaction. “You’ll want a lawyer who specializes in mergers & acquisitions,” says Michael Hyatt, a Toronto-based entrepreneur and investor who sold BlueCat, a software company he founded with his brother, to Madison Dearborn Partners LLC for a reported $400-million in 2017. In addition to a mergers and acquisitions (M&A) lawyer, you will need an investment banker familiar with your sector and an accountant to offer the best tax advice.
These professionals should act as guides, says Mireille Fontaine, a partner with BCF Business Law who specializes in mergers and acquisitions and who worked with Nickoletopoulos on his deal. Selling a company, especially one that you’ve built, can be an emotional process. “The good lawyers and the good bankers understand that and know how to run the deals seamlessly,” Fontaine says.
Do your research: Being approached by a buyer can put you at a disadvantage, since the buyer knows a lot more about you than you know about them. “If they are knocking at your door, it means they have done their homework,” Nickoletopoulos says. For him, travelling to the potential buyers’ locations to see how they ran their operations was key to deciding whether the company would be a good fit with Urecon’s existing operations.
Determine your worth: Look to your investment banker to help with valuation and to determine if there are other potential buyers, Fontaine advises. “If you have one person interested, that means there may be others,” Fontaine says. “Maybe the player you have in front of you is the only player, or maybe the investment banker can put a few interesting bidders in front of you to compete.”
Protect yourself: The potential buyer will probably want a non-disclosure agreement immediately. This will protect both parties. “If you are going to start talking, you are going to sign the non-disclosure agreement because you are going to be giving them information,” Fontaine says. You might want to save certain sensitive information to disclose at a later stage, she adds.
Decide when to get exclusive: Be wary of entering an exclusivity agreement too soon, which limits you from seeking competing bids. You want a strong offer on the table first, Fontaine suggests. Most exclusivity agreements are for a short period, 45 days, and can be extended.
Consider asking for a break fee, usually one to two per cent of the price, which will prevent a buyer from walking away from the deal over something trivial. A superior proposal clause can also be advantageous. This gives the seller options if a higher offer comes in during the exclusivity period. “It means, I’m going to give you the choice to match it, so I don’t break exclusivity with you, or I am going to be able to walk away,” Fontaine says.
Keep running the company: Remember, deals don’t always close. “You have to act like the deal is not happening,” Hyatt says. “You could be in a process for six to 12 months, selling your company, and in the end, they say no, and you have just screwed up your revenue for a year.” Hyatt suggests delegating some business operations to a trusted executive, such as the chief financial officer, while you focus on the deal.
For Nickoletopoulos, the key to success was keeping his cards close to his chest, at least initially. He required confidentiality on his team during the seven-month negotiation, letting only his counsel, employee shareholders and key executives know.
The result was a “rewarding” deal with Swiss-based Georg Fischer for a 49 per cent stake in the company worth between $20- and $50-million (the exact terms aren’t public), which closed July 2017. “They had the resources to pay what we were asking and a product line that allowed us to vertically integrate,” Nickoletopoulos says. “The deal also gives us access a new selling force across the world.”
Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.