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How to Respond to an Offer to Purchase Your Bus Business

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Every day, business owners across the country are confronted with what could be the financial opportunity of a lifetime. This takes place when a bus business owner receives an unsolicited offer to purchase their business. However, many of these opportunities never materialize. This is largely because the average business owner is unfamiliar with how to respond to an offer to purchase a business. If we are being honest, there is often some fear about change that prevents many business owners from fully exploring an offer.

Instead of bristling at or ignoring an offer or an expressed interest in buying your business, take it as a compliment.

While you are certainly not obligated to accept the offer, exploring your options will ensure that you protect the interests of those involved in your business that could be affected by a possible sale. Additionally, the knowledge gained through a little exploration now will likely empower you as a business owner moving forward and ensure that you will not regret your decision in the future.

So we can fully appreciate the importance of this matter, let us examine how an exchange between an interested buyer and a possible seller commonly plays out in the bus industry.

Interested Buyer: If you would consider selling your bus business, I think I would be interested in buying it.

Bus Business: I will not be selling for the next
5-10 years or so. Thanks anyways.

Interested Buyer: What is significant about 5-10 years from now?

Bus Business: Nothing in particular. That is just when I think I will have had enough of this industry and when I will be ready to retire. (Smiles)

Interested Buyer: I understand. But I am interested trying to work out a deal that makes sense for both of us today. Purchasing your business in 5-10 years from now does not fit in with my investment plans. Why not just explore a few possibilities?

Bus Business: I don’t know . . . we have had a few rough years, and we are just now starting to turn the corner. I don’t think it would benefit me to sell right now. I should wait until I fix some problems and get my cash flow situation more stabilized. Also, I think things are really starting to pick up.

Interested Buyer: I hear what you are saying. I may not be as concerned about the last couple of years as you seem to be. Don’t you want to at least hear what my offer would be or at least try to see if we can work something out?

Bus Business: Don’t take this the wrong way. I am working 14 hours a day, seven days a week. I am in the process of purchasing five new buses right now. I appreciate your interest. I just do not have the time to give your proposal any attention right now.

Interested Buyer: Okay. I wish you all the best.

What can bus business owners take away from this example?

Be Prepared

It is understandable to be caught off guard in this type of situation. It is also very easy to be become “busy” when confronted with a potentially life altering decision – that is human nature. It is a fact of life that every owner will sell or transfer the ownership of their company someday. Being prepared to respond to an interested buyer on any given day could allow you to capitalize on the right opportunity at the right time.

How can you prepare yourself? First, write this statement down:

Being prepared to respond to an interested buyer on any given day could allow you to capitalize on the right opportunity at the right time.

I,____________________, will not respond to any offers to purchase my business while I am under a bus, covered in grease, or distracted by insurance, employee, or other regulatory issues that prevent me from giving a matter of such extraordinary financial consequence the appropriate amount of attention. I will respond to an offer in a timely manner, and only once I have processed it objectively and physically away from the business.

Then, sign it in front of your spouse or business partner or both.

This is a simple plan, a promise, to be fair to yourself and to be a good steward of the resources, gifts and employees that are entrusted under your care.

Along with a simple plan, preparation requires a baseline from which to measure unsolicited offers. This is accomplished through obtaining a business valuation from a third party firm. Many business owners own stocks. Though they may check the stock market every day, they can often go years, even decades, without accurately understanding the value of the one investment that requires most of their time, talent and treasure: their business. Most wealth management firms recommend business owners obtain a business valuation every 18-24 months in order manage their wealth and overall risks.

If you are trying to respond intelligently to an offer to purchase your business, it is highly recommended that you obtain a third party appraisal from a firm that understands how to value a bus business. Why wait until an offer is on the table, thereby inviting a situation that places you in a precarious position. If you own a strong business with a rich history and recognized brand, shouldn’t you be expecting unsolicited offers?

If so, a better way to prepare to respond to an unsolicited offer is to obtain the valuation before you are on the clock. This allows you to have the right information in hand when an offer comes. Preparing in this manner saves unnecessary “rush” expenses with bookkeepers and accoun- tants that should be unnecessary. It also helps eliminate a significant amount of stress commonly associated with responding to an offer. Expecting unsolicited offers and preparing accordingly allows business owners to appreciate the experience, whether they choose to accept the offer or not, while protecting the business from unnecessary expense and distraction.

The Tenney Group performed a business valuation for a bus company in the Northeast recently. The business owner had been approached by two strategic buyers already in the transportation industry about a possible purchase. As the seriousness of the conservations about a purchase began to escalate, the owner reached out to The Tenney Group because:

1) He felt less experienced and less knowledgeable about transactions and business value than the folks expressing interest in his business. This made him uncomfortable.

2) He knew that a formal business valuation would help level the playing field as he continued in discussions with possible buyers.

What Happened? The owner obtained the business valuation. Between the expressed transaction goals of the buyers and the evidence presented in the valuation report, the owner was able to quickly access that there was not a fit, at least not now. In doing so, he saved the buyers and himself tremendous time and expense. The buyers appreciated knowing where they stood and the courtesy of time saved. They also expressed that they wanted to keep the door
6-12 months.

By being prepared to respond to an offer and taking control of the situation, this Northeast bus company was able to quickly make an informed decision concerning a possible business sale that saved time and money. In doing so, he also protected the confidentiality of his business from long, drawn out “talks” about a possible business sale that would have been unnecessary and potentially destabilizing. Best of all, he managed to accomplish these things while keeping the buyers in play for a future deal.

Be Open-Minded

A few years back, The Tenney Group was involved in a transportation company sale in Virginia. The interested buyer was an existing national transportation company. The buyer wanted to open up a new market near the D.C. area as part of their national growth strategy. They believed that acquiring an existing transportation in the region would likely be a cost effective alternative to developing a market from scratch. Our client, “ABC Transportation,” had the potential to address what they needed as a platform company in the marketplace: a strong revenue stream, an ideal location and facility, and a good reputation in the industry. ABC had consistently produced about two million dollars in annual sales for the past five years.

The buyer wasted no time in proposing an offer to purchase ABC Transportation. When the owner of ABC reviewed the initial offer, many colorful words began to flow from his mouth. The offer was a mile away from what was acceptable in his mind. He instructed The Tenney Group to cease all communications with this buyer. He believed the buyer was trying to take his 18- year-old transportation company for basically “nothing.”

The Tenney Group listened to the owner of ABC and waited for the wave of emotions to pass. The offer was well below fair market value. There was no doubt about that. The bright side was that the buyer was engaged into the transaction process. He was not just “talking.” He put his money where his mouth was in the form of a written offer. Many discussions between possible investors and bus business owners never get this far.

At this point, it was critical to help our client remain open minded to the possibilities that could develop from this first offer and why. We explained to our client that as disappointing as the offer may be, this is a good thing. We can work with a written offer. Though reluctant and skeptical, the owner agreed to let us continue working with the buyer to make a deal based on these three reasons.

1. At this point, the buyer clearly did not understand what the acquisition of ABC could allow him to accomplish financially. By clearly demonstrating short- and long- term cash flow benefits of the acquisition to the buyer, there was a strong possibility we could improve the offer for the seller.

2. The seller, more so than any other business in the area, addressed the specific criteria the buyer wanted and needed to open a new market. ABC was strategically valuable to the buyer’s overall business strategy, and we could leverage it to the seller’s advantage.

3. The buyer had demonstrated himself to be a reasonable business man throughout all initial discussions. One of his early comments to The Tenney Group was, “I have never approached deals like that before. If you can show me how I can make money using your approach, I will entertain all transaction possibilities.”

Long story short. The seller kept an open mind. In fact, he kept an open mind as the same buyer submitted three more offers until the fourth offer finally achieved everything the buyer and seller needed to accomplish through a deal. The difference in sale price from the first offer to the fourth offer was about 45 percent.

Takeaway: The seller resisted every urge inside to tell that buyer to jump in a lake. He relied on The Tenney Group’s assessment that the buyer was not trying to low ball the seller. He was just limited by his own understanding at that point in the transaction process. Because both the seller and the buyer remained open-minded even when they were both justifiably frustrated by the process, they each accomplished something special through a transaction. The seller ’s success ties directly back to how he responded to the buyer ’s first offer.

The seller’s success ties directly back to how he responded to the buyer’s first offer.

Seek Professional Advice

When a business owner has established a baseline through a business valuation, and kept an open mind to consider all offers, there still may be a wide gap between a buyer’s offer and what a seller believes to be an acceptable offer. Why? Sometimes an offer is unacceptable not because it is too low but because it is incomplete. Transferring ownership in the bus industry is challenging even when a buyer and a potential seller share the same end goals. Some of these obstacles include handling facility leases, bus leases, transferring operating permits or service contracts, addressing the future of key employees, agreeing on deal structure and price allocation, dealing with tax issues, non-competes, etc. A typical “initial” offer rarely addresses all of these critical issues.

The good news is that effectively addressing these issues creates more opportunities, more paths, to help both seller and buyer accomplish their respective transaction goals. How can a business owner respond to an offer when they have reached an impasse or when they have determined that something is missing from the offer proposal? When a business owner has received an offer from a buyer to whom he would ideally like to sell his business, it is critical to seek professional help to determine all options available that could help make that happen.

Recently The Tenney Group was requested to help facilitate a business sale of a transportation company in the Midwest, “Midwest Trans.” Midwest Trans did about one- and-a-half million dollars in annual sales. The potential buyer, a transportation company from the Northeast, had proposed a price that was acceptable to the seller, but his offer failed to address an effective solution for dealing with the seller’s facility lease. The buyer agreed to take over the lease but not at the price the seller required. This created an overall gap of about $100,000 spread out across three years.

A typical “initial” offer rarely addresses all of these critical issues.

Both buyer and seller dug in on this issue. Current market value for commercial property had depreciated significantly since the seller purchased the property. The buyer would only pay what was considered fair market value. This deal could have easily fallen apart at this point. Luckily both buyer and seller asked The Tenney Group to offer a solution.

We were able to arrange for the buyer to pay fair market value for one year. Should the rent value go up, the buyer would pay for the increased value. The seller was also given the flexibility to lease the property to another business should they find a way to advance their position after one year. The buyer, of course, would be given the opportunity to match any offer. This flexibility changed the complexion of the whole deal for both parties. Had the buyer and seller failed to seek outside help, the seller would have likely never been able to respond to a “complete” offer and ultimately sell his business.

Conclusion

Effectively responding to an offer to purchase your business does not equate to accepting or rejecting it. When you respond to an offer to purchase your business effectively, you create strategic options for you today, and preserve strategic options for the future. When you respond poorly, the opposite is equally true. The path to accomplishing this begins with being prepared for offers.

Make a plan for how you will respond to an unexpected offer and do not wait to establish a business value baseline. This saves money, reduces possible stress and keeps you in control of future transaction discussions. Secondly, keep an open mind when you are presented with offers. The buyer may not fully understand what your business has to offer at the present time. The fact that the buyer is engaged in the process is more important than anything else. Lastly, get professional assistance early in the process in order to bridge valuation gaps and to help navigate both buyer and seller through the array of transaction complexities that are unique to the bus industry. 

Make a plan for how you will respond to an unexpected offer and do not wait to establish a business value baseline.

Visit us at www.thetenneygroup.com

Spencer Tenney, CBI Managing Partner, The Tenney Group

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