Short Answer – NO you do not have to accept the highest offer.
Correct Answer – the following explains why you might not want to accept the highest offer.
At first, I was really surprised when my clients did not select the highest offer. I had come from the Fortune 500 environment where it is all about money (Earnings per Share).
I learned two things very quickly.
Not All Offers Are Equal
A 12,000,000 offer with 90% cash at close may be valued more highly than a 15,000,000 offer with 75% (of 10,000,000) cash at close and a 5,000,000 earnout.
There are a lot of factors that go into the decision-making process including tax and financial strategies. However, the most important consideration is evaluating the likelihood of getting paid on deferred or contingent payment obligations. If you were selling to Google, you would take the 15,000,000 option every time. If you were selling to an unproven buyer with a standalone poorly funded acquiring company. you would take the 12,000,000 every time. Everything in between those two extremes would need to be evaluated on a specific detailed basis. As a firm, we always encourage our clients to be cash conservative and risk averse.
Quality People Value More Than Just Money
A quality owner recognizes that their employees had a huge part in their success. They typically feel guilty that they are abandoning their employees when they sell. To offset that guilt, they often go to great lengths to ensure that the sales transaction will provide a favorable outcome for their employees. Quality sellers are also focused on:
- What is the culture of the buyer?
- How would they treat their customers and suppliers?
- Would they respect and continue the legacy of the company?
- Are the buyer's people oriented or only money oriented?
- What is the buyer's probability of success?
The culture and operating ideology of the buyer is often times very important to the seller.
Fortunately, most buyers make no effort whatsoever to cover up an impersonal or toxic operating culture.
This is exactly why our firm strives to get our clients at least five offers.
This allows them to evaluate and select based upon economics and cultural indicators that are most important to them.