Business owners who receive an unexpected call from a competitor with an offer to buy their business, will often be in a quandary.  An unsolicited approach will often be flattering and the thought of selling and no longer being responsible for their business, may be appealing.

What to do next though may lead to feelings of anxiety and guilt.

We recently saw the challenge with a client of ours.  The 100% business owner, who I will call John, (aged 60) was sceptical that the buyer, a competitor, would offer him a good price.  But ahead of negotiations John had no way of knowing if that was true.

John’s anxiety was driven not by the sale process (he had successfully sold a business before) but whether he should tell, Richard, his right hand man about the approach.

Richard (aged 41) had been with the business for 10 years and was a capable, if cautious manager.  John felt Richard had the potential (with some coaching) to become MD.

The competitor’s premises were some 75 miles away.  The likely scenarios would be John’s business being moved to the competitor’s and the MD position would be redundant.

Selling any business, but particularly a small business, without the owner involving key members of his team is all but impossible.  So the question is always one of timing in terms of when the team is told recognising that this must be before a sale is concluded legally.

Telling Richard, the trusted colleague, of the approach would almost certainly have unsettled him.  But with John wanting to plan for his retirement in 4 years or so that time would eventually come.

John came to see the Everyman Legal team and working with him we designed a share incentive reward for Richard and two other colleagues.  The key feature of that incentive was that, provided modest growth targets were achieved, Richard and his team would be the preferred buyer of the business through a vendor-funded management buy-out.  Under this scenario the managers bought the business out of the future cash flow.

As we sat around the table for the signing of the share incentive paperwork the alternative of a trade sale to a competitor was openly discussed.

The nettle have been grasped early and with open communications and dialogue the future anxiety if the call comes from the competitor (or a broker is to be hired to sell the company) had been greatly reduced.

What is more Richard is clear that if he and his team can deliver those growth targets, John will support him on an MBO.  Everyone would be a winner.

For further information, please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 or email everyman@everymanlegal.com