We have a client in Northern Nevada that we have been working with for years as they prepared their company and themselves to come to market. They always said that there was one large billion dollar strategic company (let’s call them Company A) that would love to own them. It seemed simple – we would just approach a few companies plus Company A. Company A clearly had a LOT of synergnies in acquiring our client and would probably pay a lot to get them.
But there are three words that ring true more often than not: “you never know”. So we did the normal marketing process and contacted many buyers, knowing all along it would probably just end up being Company A. But you never know. Company A did indeed jump right on it, and they were clearly excited about the opportunity. But when we received their offer we were shocked. They undervalued the company by a significant margin. At first I thought they were playing games, but it became apparent that the sky seemed to be a different color of blue in their world. We had 11 offers for this company, and Company A was number 10. Number 11 was the type of crazy low-ball offers we get where some financial buyers just throw out offers hoping something will stick.
The situation was this: Typically a large strategic buyer with clear synergies with the target can and will pay more than financial buyers; however, in this case NINE financial buyers outbid the strategic by a very wide margin. It wasn’t even close. Company A even felt a little entitled and emailed me with dates that they would show up in Nevada for meetings and due diligence. I had to politely say that unless their offer changed by quite a bit, there would be no meeting. They didn’t change their offer and there was no meeting. I am quite sure that in a year or two they will realize how short sighted they were.
What lesson can you take a away here? “You never know.” You never know who may or may not be in position to buy at any given time, and what color blue the sky is in their world. You just never know until you get into the market.