The first forty-eight hours: what to do when someone offers to buy your company

It rarely arrives as an offer. It arrives as a conversation — at a trade show, on a call that was supposed to be about supply, or in an email from someone in corporate development who says they have followed the brand for a while and wondered whether you had ever given any thought to the future. There is no letter, no number and nothing to sign. Which is exactly why most founders handle it badly.

The instinct is to be open and helpful. Someone has taken the business seriously and the natural response is to take them seriously back: explain the margin, walk through the growth plan, send last year's accounts, mention what you think it might be worth. Within a fortnight a single buyer has a complete picture of the company, a reference price the seller set themselves, and exclusivity in all but name — having committed to nothing at all.

You are not in a negotiation. You are in a valuation exercise being run by the other side. An informal approach is cheap for the buyer and expensive for the seller. The buyer is testing three things: whether the asset is available, what it would cost, and whether they will have to compete for it. Every helpful answer resolves one of those questions in their favour and removes a reason for them to move quickly or pay generously. Nothing you say in the first two weeks improves the price. A surprising amount of it can cap the price.

The first number mentioned in an approach almost always becomes the ceiling — and it is almost always mentioned by the seller.

Say very little, and say it deliberately. The useful reply is warm, brief and non-committal: the business is not for sale and there is no process running, but you are willing to have a serious conversation with a serious party. Do not name a number, do not respond to theirs, and do not describe what you would "probably accept". If pressed on value, the honest and correct answer is that you have not tested the market and are not going to price the business in a corridor conversation. That is not gamesmanship. It is the truth, and it preserves every option you have.

Establish who is actually asking, and why now. Approaches come from three quite different places and they are easy to confuse. There is the strategic buyer with a mandate, a budget and board approval, who has a specific reason to move this year. There is the opportunistic buyer with no capital allocated, testing whether you are cheap. And there is the competitor or channel partner who has no intention of buying anything and is collecting information they could not otherwise obtain. Before you release anything, find out who owns the decision, what has been approved internally, where the funding comes from, and what they have bought before. A buyer who cannot answer those questions is not yet a buyer.

Protect the information before you release any of it. A mutual confidentiality agreement with a defined purpose, a non-solicitation of your staff and customers, and an obligation to return or destroy material is the minimum. What you should not sign in the first fortnight is anything that grants exclusivity, a standstill or a no-shop. Those clauses are routinely presented as procedural and they are not; they remove your ability to create competition at precisely the moment competition is worth the most. If a party wants exclusivity, it should be paid for with a price and a timetable, and it belongs much later in a process, not at the start.

Find out whether there is a second buyer — quietly. The single largest determinant of the price is not the quality of the business. It is whether the buyer believes someone else might have it. That knowledge sits with the seller and it is entirely recoverable in the first fortnight: a discreet map of the four to eight parties who could credibly acquire the company, what they have paid recently and what they are short of strategically. You do not have to run an auction. You only have to know, before you engage, whether one is available to you. A single-buyer conversation is a negotiation with one side.

Tell almost no one. An approach that becomes known inside the business creates uncertainty among the people whose retention the buyer will price, and an approach that becomes known outside it invites customers, suppliers and lenders to re-price their own exposure. In a market as small as New Zealand's, discretion is not caution — it is a value driver. Confine the conversation to shareholders who must be told and advisers who are engaged.

What that leaves you doing by day two. A short, courteous holding reply. A mutual NDA out for signature. A list of what you actually know about the other side, and what you need to find out. A private view of who else could buy the business. A conversation with your co-shareholders about whether they would sell at all, and roughly at what — because an approach you cannot deliver on is worse than no approach. None of this commits you to a sale. All of it is unavailable to you three weeks later if you have already answered every question and named a price.

Why we take this view. We have watched good businesses transact at a discount not because the buyer was aggressive but because the seller had, in complete good faith, given away every source of leverage before anyone had drafted a term sheet. The approach feels like the beginning of a deal. In practice it is the beginning of a valuation, and the decisions taken in the first week of it tend to be the ones the final price rests on.

If you have had an approach and have not yet replied, that is the right moment for a confidential second opinion rather than the wrong one. You can also have these notes sent to you by email.