The Advantages of Running a Non-Exclusive Process

Bill Evick

Eighteen months before we sold Aptexx, we received an offer from the eventual acquirer. While the offer was tempting at the time, hiring a bank to help us was the right choice. Here’s why.

A year and a half before we sold the company, we received an offer from Property Brands, the eventual acquirer. At the time, we were tempted by the offer, but decided to hire a bank and go out to a broader audience. This was the right choice for us for three reasons:

  • It is impossible to effectively market your company, interface with dozens of buyers, and respond to diligence requests at the same time you’re trying to run the business. Arbor took this load off our shoulders so we could concentrate on what mattered most–growing the company.
  • Running a process enabled us to speak with several potential partners in parallel so we could narrow in on the best one.
  • A non-exclusive process helped us optimize the outcome with respect to price and structure.

It’s Difficult to Run an Effective Process and Your Business at the Same Time:

Every entrepreneur knows how much time it takes to manage a company. Running a process is a fulltime job in and of itself. If we would have spent the time needed to create marketing materials, reach out to buyers, have dozens of conversations over the span of months, and then respond to every diligence question, our sales would have suffered, which would have hurt our valuation. Having Arbor there to do the heavy lifting on this was critical.

You Can’t Find the Right Partner by Yourself:

We had been attracting inbound interest from private equity firms for some time before we ultimately decided it was the right time to take chips off the table. When we took calls from investors, most of their pitches sounded the same–it wasn’t clear who would make the best partner. Arbor helped set up meetings in parallel and asked the investors good questions so we could narrow in on who had the right investment thesis and who would be able to add the most strategic value. Price wasn’t the only criteria for us because we wanted to roll-over some equity to get a second bite at the apple—we had to find the right partner. In retrospect, without an advisor, we would have been talking to a more narrow group of buyers.

You Can’t Optimize the Outcome Without Leverage:

There are several ways a buyer can pay for a company–cash, debt, equity, deferred compensation, and earn-outs. Before we hired an advisor, the offers we had received were generally light on upfront cash and heavy on earn-outs, even though we expressed that our preference was cash up front. Having an advisor provided important leverage in this part of the negotiation. The buyers all knew that there were multiple parties at the table, and we were able to drive the structure and process rather than react to investor proposals.

During the course of our process, we were fortunate enough to receive over 10 bids. Every investor asked for exclusivity to gain leverage, but Arbor narrowed in on the five best potential buyers and, to keep the leverage on our side, refused to give exclusivity–walking each investor down the aisle in parallel. All five investors paid for legal and other diligence expenses out of their own pocket, which made it harder for them to walk away in the end. We never would have been able to do this internally. The partner we eventually selected increased their bid by more than 50%–about 3x what they had offered eighteen months earlier. What was nice about the process is that we were in the “driver’s seat,” the entire time, and were able to steer things toward an optimal outcome.