An unexpected acquisition offer may arrive unexpectedly for any company. And while receiving an offer communiqué can be exhilarating, it also requires careful consideration before moving forward.
Although flattering, unsolicited bids can distract busy leaders, disrupt operations, and create a drag on resources as people scramble to evaluate, explore strategies, and respond appropriately.
But does that mean your company needs a policy — just in case such an offer flies in over the transom?
Aside from the immediate response necessitated by a serious purchase offer, the potential spread of acquisition-related rumors can unsettle employees who worry about changes ahead. And if an acquisition offer becomes public knowledge, communities reliant on ESOP company jobs may respond with undue anxiety.
Without proper handling, unsolicited offers can even influence the company’s standing and impact its value. So when offers arrive unexpectedly, thoughtful navigation is essential.
Key Considerations for Unsolicited Offers
Let’s get one big truth out of the way before diving into the serious offers: Lots of unsolicited offer emails are fraudulent. Always proceed with caution, verify the source, and watch for red flags such as a pressing urgency or lack of specifics, before engaging with an offer. Disregard communications that promise overvaluation or refer to a value that’s out of sync with what you know your company’s worth.
Weeding out fake or deceptive offers is the easy part; genuine offers to purchase bring additional concerns:
- Company valuation — Before you can respond to any offer, it’s key to have an up-to-date, independent valuation of your company for comparison
- Strategic fit — Assess the acquiring company’s fit with your mission, values, and long-term goals. Determine whether the buyer’s plans align with the company’s vision
- Impact on employees — Will jobs be retained or added? Will business opportunities change? What about internal succession plans?
- Debt considerations — If your company has outstanding loans, it's crucial to assess the potential impact of a sale on repayment conditions and terms.
- Tax implications — Any significant change to the company's structure, such as an acquisition, can bring about substantial tax consequences.
While some companies take a straight not-for-sale stance, rigid refusals could raise fiduciary issues. Thoughtfully constructed guidelines can promote a more thorough, prudent analysis of offers that come in, and for some companies, that can mean a written policy document. Such a document can:
- Outline a structured preparation and information gathering process to avoid hasty reactions and ad hoc responses
- Demonstrate and document any fiduciary accountabilities
- Detail financial, legal, cultural, and other criteria for assessing any offer’s merits
- Plan for offer-related communications
- Clarify any expectations for employee input
- Establish a timeline that prevents delays
- Delegate authority for tasks and decisions
- Improve discretion by incorporating confidentiality requirements
- Connect and integrate the work of trusted advisors like valuation experts, legal counsel, and financial advisors
Proceed with Care — and Deliberate Decision-Making
Every company benefits from having a clear vision to steer its responses to unsolicited acquisition offers. Whether that translates to a documented policy depends on company leaders and the insights of trusted consultants.
Leveraging the expertise of seasoned industry professionals can empower your team, ensuring you're prepared if a genuine offer surfaces. Any policies adopted should reflect the company's long-term aspirations and strategies, ensuring the best for all stakeholders.
Taking proactive steps, such as having a strategy or policy, can help sow and cultivate a sense of shared ownership and commitment among employees — and over a longer term, that ownership culture can help grow and enhance the company's value.
Do ESOPs Require Special Procedures When It Comes to Unsolicited Bids?
Just like every business, ESOP-owned companies benefit from a clear and comprehensive vision to guide decision-making around unsolicited purchase offers. Whether that means adopting and documenting a formal policy is a matter for leadership to decide — and that’s a decision best made with the guidance of trusted advisors.
ESOP-specific considerations include:
ESOP fiduciary duties — An ESOP board and trustees are duty-bound to act in the best interests of the ESOP participants and beneficiaries. That means their critical evaluation of bids needs to be aligned specifically with what’s truly best for stakeholders… who are also employees.
Potential impact on ESOP accounts — Changes in valuation impact the value of employee-owners’ distributions. Any offer has to weigh potential benefits against its implications to participant accounts.
ESOP debt — As with other debt, a sale could influence ESOP loan and repayment terms and conditions.
The experience and perspective of a seasoned ESOP expert can help your team become optimally prepared so you’re not caught off guard if a realistic offer comes in. Having a plan is one way leadership can promote and strengthen an ESOP-driven culture of ownership.
But it’s certainly not all you can do to reinforce ownership culture within your ESOP. Learn more about enhancing employees’ sense of shared ownership for optimal company value with our free guide to building ownership culture. Click below for the download.