The Third Option Between Referring to a Banker and Taking the Inbound Offer

The two options owners are usually given

The second path is to engage with the buyer who already called. Private equity platforms and strategic acquirers sometimes send unsolicited letters, including when an owner is beginning to think about an exit. The owner takes the call, shares some financials, receives a number, and begins negotiating. No one else is contacted. The owner's attorney is brought in to paper the LOI.

Between these two paths, most owners perceive nothing. The attorney who offers a third path changes the owner's set of choices.

Why the inbound offer is not a process

An inbound offer feels like an outcome without the cost of a process. It is not. It is the opening bid in a negotiation where only one party has information about the market.

The buyer who sent the letter knows what it has paid for similar companies, what it will pay for this one, and what it will say to anchor the owner low. The owner knows what a friend got for a company that may or may not have been comparable. The buyer's number becomes the owner's reference point by default.

The inbound buyer also controls the sequence. It proposes an LOI with exclusivity before the owner has heard from anyone else. Once exclusivity is signed, the buyer's diligence team has months to find reasons to reduce the price, and the owner has no alternative to point to. A re-trade, meaning a price reduction late in diligence, can be harder for an owner to resist in a one-buyer negotiation because there is no competing bidder waiting in the process. A competitive process can give the seller more control, although it can also take longer. [2]

None of this means the inbound buyer is a bad buyer. It may end up being the best buyer. The problem is that the owner cannot know that without a comparison, and the inbound path provides none.

Why the banker referral often fails below $30 million

An attorney who refers a smaller company to a bank may get one of several results. The bank may decline, accept the engagement with a narrower process, or refer the owner to another intermediary. The result depends on the company and the intermediary's fit.

Each of these costs the owner something. A declined referral can cost time, and a referred engagement can carry a fee structure and process scope the owner did not originally expect. The attorney should compare those tradeoffs with the client before recommending a path.

For the attorney, every one of these results also ends the attorney's involvement until the LOI arrives. The referral was made in good faith and the attorney's role was reduced to documentation.

What the third option looks like in practice

In the third option, the attorney scopes an engagement that covers the process. The attorney and client should confirm the firm's regulatory position with the firm's own counsel before taking on activities beyond the legal work. The client completes a questionnaire and populates a data room. The attorney reviews readiness and advises on what to fix before marketing. A valuation range is set and the client decides whether to proceed. A blind teaser and a CIM are produced and edited by the attorney for accuracy and disclosure. A buyer list is built from documented acquisition criteria and available buyer information, and the client approves every name. Outreach goes out, NDAs come back, the CIM is distributed, and IOIs arrive by a deadline. The client compares offers with the attorney's analysis, selects an LOI, decides whether to grant limited exclusivity, and the attorney handles the legal work through diligence and closing.

The inbound buyer, if there was one, is a name on the list. It receives the same teaser and the same deadline as everyone else. Its offer is compared against the others. Sometimes it wins. Often it improves its offer because it now knows it is competing.

Throughout, the firm bills hourly or on fixed fees by phase. The client makes every decision about which buyers to approach and which offers to pursue. The firm should confirm its own position with its own counsel on how the federal M&A broker exemption and state rules apply to the activities it takes on and the fees it charges, and should structure the engagement accordingly. The federal statute contains specific exclusions and conditions, so applicability is fact-specific. [1]

The economics for the client, illustrated

Take an illustrative company with $2.5 million of adjusted EBITDA. The inbound buyer offers $13 million, which is a little over five times. The owner, with no other reference, is inclined to accept.

Under the third option, the attorney's process produces five IOIs between $12 million and $16.5 million. The owner selects an LOI at $16 million, with 70 percent cash at close rather than the 55 percent the inbound buyer proposed. The attorney's fees for the full engagement, including the purchase agreement the owner would have paid for anyway, run to a fraction of what a success fee on $16 million would have been.

The gap between $13 million and $16 million is not a prediction. It is an illustration of what competition does. The point for the owner is that the third option produced the comparison that the inbound path could not, at a cost the owner could see in advance.

How to raise the third option with a client who has a letter in hand

The conversation takes ten minutes. The attorney asks the client not to respond to the buyer until counsel has. The attorney then explains that the letter is useful because it confirms there is a market, and that the right next step is to find out what the rest of the market would pay before engaging with one party.

The attorney proposes a two-week scoping phase: questionnaire, data room, and a preliminary valuation range. At the end of the two weeks, the client should have a better basis for assessing the inbound number and deciding whether to run a full process. The buyer, meanwhile, receives a courteous note from counsel that the owner is evaluating options and will respond in due course.

An attorney can have this conversation this week with any client who has forwarded a buyer's letter in the past year. The letter is the opening. The third option is the answer.

How Acquivo Pro fits

Acquivo Pro is built for the third option. On one login the firm sets a valuation range across 21 industry verticals using a deterministic engine whose figures trace to their source, generates the teaser and CIM from the client questionnaire and data room, and builds a prospect list tailored to the client using documented buyer information and acquisition criteria. NDA, IOI, and LOI flow for every client sits in a single pipeline, and the client sees a branded document portal under the firm's name. Pricing is per seat on a flat monthly subscription with no per-deal fees. Software prepares, organizes, matches, and tracks; the attorney and the client decide and act. To walk through a process on a client you have in mind, request a demo through the Contact page.