Topic 14 shared the following:
You want to sell your company for the highest price possible and they want to buy your company for the lowest price possible. Those are reasonable expectations by both parties.
This principle does apply to unsolicited Letters of Intent (LOI).
There is a phenomenon that I call "LOI Intoxication".
The best definition that I can come up with is that when a seller gets an unexpected LOI (offer) from a large highly respected company they ASSUME it is at fair market value.
When a seller gets one of these unsolicited (unexpected) Letters of Intent they get a rush of pride and accomplishment. Wow! This large respected company found my company and they think so much of it that they are offering to buy it.
Yes, offering to buy it is a concept. This concept could also be labeled "offering to steal it in broad daylight with your written consent".
Please recognize a key concept here. The term unsolicited means unexpected. That means the seller is not the least bit prepared to respond to the unexpected offer. Many times, they were not even thinking about selling. It also means that they do not have their sales objectives defined or a high-quality advisor in place.
They are not mentally or physically prepared to enter into negotiations for their company.
Couple that with the concept that the offer may be for 40% - 50% of the fair market value of their company and they are on the precipice of making one of, if not the biggest mistake of their lives.
I had a client (wasn't a client at the time that they received the unsolicited LOI) that received an unsolicited LOI and was prudent enough to share it with me.
One of my first questions back to them was "why would you consider accepting an offer for less than 50% of what your company is worth". Their response was we assumed it was a fair offer since the company is a two-billion-dollar company. I redlined the LOI and they sent it back without telling the company I was involved. The company raised their offer 67%. They disengaged with that company once they learned that they were trying to legally steal their company. We ultimately achieved a price that was over three times that company's original unsolicited LOI offer price.
Is the offering company a bad company? No. Extremely opportunistic and exploitative. Yes.
This is another perfect example of why you do not want to attempt to sell your company on your own. Secure really strong M&A representation and assure yourself that you will get a fair value for your company.