When Suitors Come Knocking {with a diligence phalanx in tow}

There is a fundamental difference in the dynamic between running an M&A sale process proactively seeking buyers versus responding to unsolicited offers.

When running a sale process, the company is the one pitching the deal. It's the buyer that needs to be sold on the transaction. At the end of the day, the target initiated the sale process and should be responsive to *reasonable* buyer diligence and other requests.

Receiving unsolicited bids is an entirely different matter. The boards and management of some companies may be generally opposed to a sale, but have fiduciary duties to consider serious offers. Other companies may receive cold reach-outs and simply want to explore the potential transaction. In both cases, the buyer is the one pitching the deal, which changes the power dynamic.

Sellers have the ability to set the tone and control next steps. After all, they're the ones being courted.

For example, if the seller doesn't want to share certain information, it shouldn't share it. The target does not have to comply with the buyer's "standard process". If that doesn't work for the buyer, that's OK - they approached the company, which was doing fine before that overture.

As another example, if the seller doesn't like the buyer's NDA (or the buyer doesn't like the seller's markup or form), again, there's no pressure to move forward.

Finally, the IOI (as opposed to an LOI) can be the seller's friend for dealing with unsolicited bids. Suggest providing IOI-supportive diligence (much more limited than that provided to get to an LOI) in order to save time and expense, as well as protect sensitive information, to see if the buyer is broadly on the same page as to value and terms. If so, move forward towards an LOI with more confidence in the buyer and more extensive diligence; if not, break things off.

Also, if a seller is inclined to move forward with a buyer, consider running a process. Competition simply drives more value. There's a reason buyers prefer "off-market" deals. Also, the seller's board may be duty-bound to run a process once they decide on a sale.

BOTTOM LINE: There are many nuances to the points above. A sale process is not a free-for-all,* and truly considering unsolicited bids also requires cooperation on the seller's part, BUT it's important to understand the positional dynamics and who's really courting whom.

*To be clear, it's a sale, not a fire sale. For example, at Sierra Pacific Partners, we use as many controls as possible to target the right buyers, screen them for suitability and financing capacity, protect and meter client diligence information, communicate what terms are and are not acceptable, generate competition, and generally telegraph that while the target is for sale, it is only for sale on terms inline with equityholder goals.