How to Respond to an Unsolicited Offer for Your Business

An unsolicited offer should be treated as information, not validation. The buyer may be serious and the timing may be attractive, but the first proposal is built around the buyer’s objectives. Your job is to protect confidentiality, understand what is actually being offered and create enough leverage to decide whether a negotiated bilateral deal or a broader process will produce the better outcome.

Do not provide detailed financial information, name a price or agree to exclusivity in the first conversation. Ask questions, preserve optionality and obtain independent advice. KitsWest Capital helps owners assess inbound interest through its M&A advisory practice and business valuation services.

The first call is diligence on the buyer

Ask why the buyer contacted your company, what it owns, who controls its acquisition decisions and which transactions it has completed. Determine whether it is a strategic acquirer, private equity firm, search fund, broker or intermediary. A polished email does not prove capital, authority or fit.

Keep your answers high level. You can confirm the nature of the business and whether you are willing to hear more without disclosing customer names, margins, employee compensation or proprietary processes. The buyer should earn access through credibility and a structured next step.

Do not negotiate against yourself

Owners often respond to “What would it take?” with an aspirational number. That number becomes an anchor and may cap the buyer’s offer. If it is too high, the buyer can disengage before understanding the business. If it is too low, the seller may never learn what the buyer could have paid.

Ask the buyer to describe its valuation framework and proposed structure after reviewing limited, reliable information. Separately establish a defensible value range and enterprise-to-equity bridge. The analysis in what a business is worth helps owners separate earnings, multiples, debt and non-operating assets.

A headline price is not an offer

A buyer may quote a value before defining cash, debt, working capital, deferred consideration and conditions. Those terms can change proceeds by millions. Ask whether the number is enterprise value or equity value, what cash and debt treatment is assumed and how much is payable at closing.

Consider a stated $10 million offer. It includes $7 million at closing, a $1.5 million vendor note and a $1.5 million earnout. The company has $1.2 million of debt and a $300,000 working capital shortfall. Immediate equity proceeds are $5.5 million before tax and costs: $7 million less debt and shortfall. If the seller assigns an 85 percent collection probability to the vendor note and a 40 percent probability to the earnout, expected total proceeds are $7.375 million. The $10 million headline is not the economic offer.

Use staged confidentiality

A non-disclosure agreement is necessary, but it is not enough. Release information in stages. Start with summarized historical results and a business overview. Disclose customer identities, pricing, employee names and detailed contracts only after the buyer has shown strategic fit, financial capacity and a credible valuation range.

A competitor requires additional controls because it can benefit from the information even if no deal closes. Limit access, redact sensitive documents and use clean-team arrangements where appropriate with legal counsel. Confidentiality is also operational. Employees and customers should not learn about a possible sale through careless scheduling or document names.

Decide whether bilateral negotiation is enough

A single-buyer negotiation can be efficient when the buyer has a unique strategic fit, offers strong terms and the owner values speed and discretion. It can also leave the seller with no market reference and no alternative if the buyer retrades after exclusivity.

A targeted process does not need to be a public auction. A small group of credible buyers can test value and structure while preserving confidentiality. The decision should reflect the likelihood of competing interest, management capacity, business readiness and the inbound buyer’s willingness to move quickly on defensible terms.

Test the buyer’s financing early

Strategic interest does not equal financing certainty. Ask how the acquisition will be funded, which approvals remain and whether lenders or investment committees have reviewed the opportunity. A buyer dependent on aggressive leverage may demand a lower price, more seller financing or a lengthy condition period.

The capital mix may include equity, senior debt, subordinate debt and a vendor note. BDC’s current acquisition-financing guidance describes those sources, but the actual mix depends on the company and buyer. Our article on financing a business acquisition explains how the structure affects closing certainty.

Control the letter of intent

The letter of intent should define price, structure, working capital, financing, diligence, exclusivity, timing and key transition expectations. Vague terms defer difficult issues until the seller has lost leverage. An owner should not grant a long exclusivity period for an incomplete proposal.

Milestones can protect the seller. Require prompt delivery of diligence requests, financing evidence and draft agreements. Preserve the ability to end exclusivity if the buyer misses them. Read letters of intent in private-company sales before treating a non-binding document as harmless.

Expect the buyer to re-underwrite the business

An inbound buyer may know the sector but not the company. It will test normalized EBITDA, customer concentration, working capital, capital expenditure, legal risk and management transferability. If records do not support the initial story, the buyer gains leverage after exclusivity.

Run a seller-side review before detailed diligence. Reconcile financial statements to tax filings, customer schedules and the general ledger. Support every add-back. The purpose is not to make the company perfect. It is to know which issues can change price and prepare a credible answer.

Separate price from personal objectives

The highest price may come with a long earnout, continued employment or a buyer the owner does not trust with employees and customers. Define desired cash at closing, acceptable transition, retained ownership, timing and treatment of real estate before negotiating.

An unsolicited offer can also expose a strategic choice between selling and funding growth. Owners who want liquidity but still believe in the business may consider a recapitalization or partial sale. The decision should be made deliberately, not because one buyer happened to call.

Know when to stop

Walk away when the buyer will not identify itself, refuses reasonable confidentiality, demands sensitive information without a credible range, repeatedly changes terms or cannot explain financing. Continued dialogue has a cost even if no information is misused. It distracts management and can create rumours.

Stopping does not close the door permanently. A concise response can preserve the relationship while stating that the company will not proceed on the proposed basis. Optionality is strongest before exclusivity and before the buyer knows the seller’s urgency.

Keep a written issues log from the first conversation. Record what the buyer asked, what information was provided, which assumptions underpin the offer and which approvals remain. Informal calls can produce conflicting recollections later. A disciplined record also prevents management from releasing the same sensitive information through different channels.

Engage tax and legal advisors before structure hardens. An asset proposal and a share proposal with the same headline value can produce different liabilities, taxes and closing mechanics. Commercial negotiation should remain coordinated, but each advisor needs a defined role. The comparison in asset versus share sales explains why structure cannot be left until the purchase agreement.

A buyer may ask the owner to remain as an employee or retain equity. Treat each element separately. Employment compensation should reflect the role. Rollover equity should be valued on its own terms, including governance, dilution and exit rights. Do not accept a lower purchase price because future employment is described as part of the consideration.

If the discussion stops, preserve the preparation. The normalized financials, customer analysis and data room can support strategic planning or a later process. An inbound approach is useful even when rejected because it reveals how the market sees the company and which weaknesses a future buyer will test.

Review the buyer’s draft offer line by line rather than replying only to price. Mark each assumption, missing definition and condition. A short response that resolves enterprise value, cash at closing and exclusivity is more valuable than a long debate over the multiple while working capital and deferred consideration remain undefined.

If customer concentration is a likely diligence issue, quantify it before the buyer frames the risk. The analysis in customer concentration and business value can help management prepare the account history, profitability and downside case. Proactive disclosure protects credibility.

The owner should also compare the proposal with the expected proceeds from continuing to operate for two or three years. That is not a reason to reject a fair offer. It is a reminder that waiting has both upside and risk. Use a probability-weighted model rather than assuming today’s EBITDA and multiple will remain available.

KitsWest’s business sale proceeds calculator can help organize the enterprise-to-equity bridge, but tax outcomes and transaction structure should be confirmed with the owner’s tax and legal advisors.

Frequently asked questions

Should I sign an NDA before sharing financials?
Yes, and information should still be staged. The agreement should be reviewed by legal counsel, particularly when the buyer is a competitor.

Should I tell employees about the offer?
Usually not at the exploratory stage. Premature disclosure can create retention and customer risk. Plan communication with advisors as the deal becomes credible.

Can I ask the buyer to improve its offer?
Yes, but first define the full economics and support your position with valuation and market evidence. A higher headline with worse terms is not necessarily better.

When should I run a broader process?
Consider it when several credible buyers may have strategic interest, the inbound proposal is weak or the owner needs market evidence before committing.

How quickly should I respond?
Acknowledge the approach promptly, then take enough time to organize advice and questions. Artificial urgency usually benefits the buyer.

Next steps

Preserve the original message, identify the buyer, limit disclosure and establish value before negotiating material terms. Compare the inbound route with a targeted process rather than assuming the choice is offer or no offer.

If you have received an unsolicited approach, contact KitsWest Capital for a confidential assessment of the buyer, the offer and the alternatives.