A Buyer Has Approached Your Company. What Should You Do Next?

A practical M&A guide for founders and CEOs on responding to inbound acquisition interest without giving up leverage

Receiving an unsolicited acquisition approach can be an exciting moment for a founder.

Perhaps a strategic buyer has been following your company for months. A private equity firm sees the potential to use your business as a platform. A competitor believes your technology, customers, team, or market position would be more valuable inside its organization.

Whatever the motivation, the first conversation can quickly create a sense that a transaction is already underway.

It isn't.

An unsolicited acquisition approach creates an opportunity. It does not necessarily establish the value of your company.

The decisions founders make between that first conversation and a formal transaction process can materially affect valuation, deal structure, negotiating leverage, confidentiality, and ultimately whether a transaction closes at all.

Before responding to an inbound M&A approach, here are the issues founders, CEOs, CFOs, and boards should consider.

At a Glance: Five Things to Do When a Buyer Approaches You

If your company receives an unsolicited acquisition approach:

1. Understand why they are interested.
The buyer's strategic rationale can tell you a great deal about what your company may be worth to them.

2. Don't rush to name your price.
Giving a number too early can establish an unintended negotiating anchor.

3. Determine how serious the buyer really is.
There is a significant difference between corporate development exploring a market and an organization prepared to make an acquisition.

4. Assess your alternatives before granting exclusivity.
A bilateral negotiation may be the right answer, but understand what you are giving up before taking yourself off the market.

5. Prepare before opening the data room.
Identify financial, customer, legal, IP, and other diligence issues before the buyer does.

The common thread is simple: preserve optionality until you have enough information to make an informed decision.

1. First, Understand Why the Buyer Wants You

Before discussing valuation, try to understand the buyer's motivation.

Why your company?

Why now?

What would owning your business allow the buyer to do that it cannot do today?

The answers matter because the same company can have very different values to different buyers.

A financial buyer may focus primarily on recurring revenue, growth, margins, cash-flow potential, market size, and opportunities to improve performance.

A strategic acquirer may see something entirely different:

• Access to your customers

• Proprietary technology or intellectual property

• Talent or technical capabilities

• Geographic expansion

• Distribution capabilities

• A complementary product

• Faster entry into a new market

• Competitive or defensive value

Imagine a software company generating $10 million of revenue.

One buyer might value it primarily on comparable SaaS multiples. Another might believe acquiring the company could accelerate a $100 million strategic initiative by two years.

Those two buyers are not necessarily valuing the same thing.

Understanding what your company enables for a particular buyer is an important part of understanding what it may be worth to them.

Ask questions and listen carefully before you start negotiating.

2. Don't Rush to Name Your Price

One of the earliest questions founders often hear is:

"What valuation would you consider?"

It is tempting to answer.

You may already have a number in mind. Perhaps you know the valuation of your last financing round. Maybe a competitor was recently acquired at an attractive multiple. Your board may have discussed a price at which selling would make sense.

But giving a number too early can create an unintended anchor.

If your number is substantially higher than the buyer's expectations, you may end a conversation before fully understanding their interest.

If your number is lower than what the buyer was prepared to pay, you may have established the ceiling rather than the floor.

That doesn't mean valuation expectations should never be discussed early. If buyer and seller expectations are dramatically different, discovering that quickly can save everyone time.

But there is a difference between determining whether you are broadly in the same range and negotiating against yourself before you understand the buyer's motivation, alternatives, and ability to pay.

You do not need to price your company simply because someone has expressed interest in buying it.

3. Determine Whether There Is Actually a Deal

Not every inbound M&A conversation represents genuine acquisition intent.

Corporate development teams, private equity firms, competitors, and investors routinely meet companies to understand markets, establish relationships, and explore potential opportunities.

A conversation can be serious without a transaction being imminent.

Before sharing highly sensitive information, try to understand:

• Who initiated the acquisition discussion?

• Who inside the buyer's organization is sponsoring it?

• Has senior management discussed the potential transaction?

• What is the strategic or investment rationale?

• Does the buyer have the financial capacity to complete the transaction?

• What is its internal approval process?

• Has it completed similar acquisitions?

• What timeline is it contemplating?

You don't need satisfactory answers to every question before continuing the conversation.

But as discussions progress, a credible buyer should generally be able to provide greater clarity.

This is particularly important when the interested party is a competitor.

Information such as customer-level revenue, pricing, product roadmaps, employee compensation, pipeline, and detailed margins can be commercially sensitive whether or not a transaction ultimately occurs.

Information should therefore be shared progressively, in proportion to the seriousness of the buyer and the stage of the process.

An NDA is important, but an NDA is not a substitute for judgment.

4. Decide Whether to Negotiate With One Buyer or Test the Market

This is often one of the most consequential decisions following an inbound approach.

There are perfectly legitimate reasons to pursue a bilateral transaction.

The buyer may be uniquely strategic. The initial proposal may already be compelling. Confidentiality may be unusually important. Speed may matter. Or shareholders may place greater value on transaction certainty than maximizing every last dollar of consideration.

But there is an obvious trade-off:

Without alternatives, it can be difficult to know whether one buyer's offer represents the market value of the company.

Competitive tension can affect much more than headline valuation. It can improve negotiating leverage around:

• Cash versus stock

• Earnouts

• Escrows and holdbacks

• Rollover equity

• Working-capital mechanics

• Representations and indemnities

• Founder and management roles

• Employee retention

• Closing conditions

• Timing

This does not mean every company should run a broad auction.

There is considerable territory between talking to one buyer and contacting dozens of potential acquirers.

For many technology businesses, a carefully targeted process involving a small number of credible strategic and financial buyers can provide useful price discovery and competitive tension while still protecting confidentiality.

The objective is not to contact the greatest number of buyers. It is to create the right alternatives

5. Prepare Before Opening the Data Room

Once serious diligence begins, the nature of the conversation changes.

Until then, the buyer is largely evaluating the opportunity.

During diligence, it begins testing the assumptions behind its valuation.

Management should therefore conduct its own readiness review before providing extensive information.

Key areas commonly include:

• Financials

Are the financial statements accurate and internally consistent? Can you clearly explain revenue recognition, gross margins, recurring versus non-recurring revenue, adjusted EBITDA, cash flow, and major historical fluctuations?

• Customers

What is customer concentration? How durable are the largest relationships? What do churn, retention, renewals, cohorts, and contract terms look like?

• Commercial Performance

How reliable is the pipeline? How have previous forecasts compared with actual results? Are bookings and ARR definitions consistently applied?

• Corporate and Capitalization

Is the cap table accurate? Are shareholder, option, warrant, and investor rights clearly documented?

• Technology and Intellectual Property

Does the company clearly own its IP? Are employee and contractor assignments in place? Are there material licensing, open-source, cybersecurity, or data-privacy issues?

• People

Who is essential to the business? Are compensation arrangements documented? Are there retention or key-person risks?

• Legal and Regulatory

Are there unresolved disputes, compliance issues, unusual contractual obligations, change-of-control provisions, or regulatory matters that could affect a transaction?

Discovering an issue does not necessarily kill a deal.

Having the buyer discover something material that management should have known can be considerably more damaging because it raises a second question:

"What else don't we know?"

Preparation protects credibility as much as it protects valuation.

6. Headline Valuation Is Not the Same as Deal Value

Suppose you receive a $50 million offer for your company.

What is the offer actually worth?

You cannot answer that from the headline number alone.

Consider two simplified offers:

Offer A: $50 million, substantially all cash at closing.

Offer B: $60 million, consisting of $40 million at closing, $10 million contingent on achieving future performance targets, and $10 million of buyer stock.

Offer B has the larger headline number.

But is it the better offer?

That depends on the probability of achieving the earnout, the value and liquidity of the buyer's shares, tax treatment, escrow arrangements, and numerous other terms.

Founders should look underneath headline valuation at issues such as:

• Cash paid at closing

• Earnouts and performance conditions

• Escrows and holdbacks

• Working-capital adjustments

• Debt and debt-like items

• Rollover equity

• Buyer stock

• Retention or employment payments

• Indemnification exposure

• Tax consequences

Even an all-cash offer can change materially between the stated enterprise value and what ultimately reaches shareholders.

Price gets the headline. Structure determines what shareholders actually receive.

7. Treat Exclusivity as Something Valuable

A serious buyer will often eventually ask the seller to stop talking to other potential acquirers.

This commonly occurs when the parties sign a Letter of Intent, or LOI.

From the buyer's perspective, the request is reasonable. Due diligence consumes time and money, and buyers want confidence that they are not simply being used to establish a price for another bidder.

But exclusivity fundamentally changes the seller's negotiating position.

Before exclusivity, the seller may have alternatives.

After exclusivity, the buyer knows those alternatives have been constrained.

This is why the period before signing the LOI can be one of the most important negotiating windows in the entire transaction.

Founders should try to resolve as many material economic and structural issues as practical before granting exclusivity.

Depending on the transaction, these may include:

• Valuation

• Form of consideration

• Earnout structure

• Rollover equity

• Treatment of debt and cash

• Working-capital principles

• Founder and management roles

• Key closing conditions

• Exclusivity period

The duration of exclusivity matters too.

An unnecessarily long exclusivity period can leave a seller with limited alternatives if the buyer slows the process, discovers issues, or attempts to renegotiate terms.

An LOI may be largely non-binding from a legal perspective.

Its commercial consequences can be very real.

8. Protect the Business While Exploring the Transaction

An M&A process can become a second full-time job.

The CEO gets pulled into buyer meetings. The CFO is responding to financial diligence. Lawyers request documents. Forecasts need updating. Customers may require analysis. Key executives eventually need to be involved.

Meanwhile, the company still has to perform.

This creates a particularly dangerous M&A dynamic:

The transaction distracts management, operating performance deteriorates, and that deterioration gives the buyer leverage to renegotiate the deal.

Imagine entering diligence after forecasting $12 million of annual revenue and then missing two consecutive months because senior management has been consumed by the transaction.

Even if the underlying business remains healthy, the buyer now has new information - and potentially a reason to revisit valuation.

Management should therefore establish clear responsibilities early:

• Who knows about the potential transaction?

• Who coordinates diligence?

• Who communicates with advisors?

• How is confidential information controlled?

• Who remains accountable for operating performance?

This is also one reason preparation matters so much.

The more work completed before the process intensifies, the less management has to improvise while simultaneously running the business.

9. Decide Whether You Need an M&A Advisor

Can a founder negotiate an inbound acquisition without an investment banker or M&A advisor?

Absolutely.

That does not necessarily mean they should.

If there is one highly credible buyer, the founder understands the company's value, the economics are relatively straightforward, and the board is comfortable with a bilateral process, a transaction may be manageable with experienced legal, accounting, and tax counsel.

But the decision becomes more complicated when there are questions around valuation, alternative buyers, process design, transaction structure, or negotiating leverage.

A good M&A advisor should do considerably more than introduce buyers.

An experienced advisor can help management:

• Assess valuation and strategic alternatives

• Understand buyer motivations

• Position the company appropriately

• Identify additional credible buyers

• Create competitive tension where appropriate

• Compare different offers on an apples-to-apples basis

• Negotiate economic and structural terms

• Manage process and momentum

• Coordinate diligence and closing

• Protect management's ability to continue running the business

There is also a less obvious benefit.

A founder selling their own company may be negotiating aggressively with executives who could become their employer, partner, board member, or colleague immediately after closing.

It can be difficult to say:

"Your offer isn't good enough."

And then sit across the table from the same person as a member of their leadership team a few months later.

An advisor can provide useful separation between the founder and difficult negotiations.

The question therefore shouldn't simply be:

"Can we do this ourselves?"

A better question is:

"What process gives shareholders the best combination of value, terms, certainty, confidentiality, and strategic outcome?"

Sometimes the answer will be to proceed directly.

Sometimes it will be to bring in an advisor.

What matters is making that decision deliberately rather than by default.

The Bottom Line

An unsolicited acquisition approach is a positive signal.

Someone sees value in what you have built.

But an inbound approach should be treated as the beginning of a strategic decision, not the end of one.

Before committing to a transaction, founders and boards should understand:

• Why this particular buyer is interested

• What the company may be worth to different buyers

• Whether credible alternatives exist

• What shareholders will actually receive

• What they are giving up by granting exclusivity

• What risks could emerge during diligence

• Whether the proposed transaction is better than continuing to build independently

Sometimes the right answer will be to move quickly with the original buyer.

Sometimes it will be to quietly test the market.

And sometimes the best decision will be not to sell at all.

The objective isn't simply to get a deal done.

It is to determine whether this is the right transaction, with the right buyer, at the right value, and on the right terms.

Frequently Asked Questions

Should I respond to an unsolicited acquisition offer?

Generally, an initial conversation can be useful even if you have no immediate intention of selling. It can help you understand how strategic or financial buyers view your company and may reveal opportunities you had not considered. The key is to control what information you share until you understand who the buyer is and how serious the interest may be.

Should I tell the buyer what valuation I want?

Not necessarily. Naming a valuation too early can create an unintended negotiating anchor. It can be useful to determine whether buyer and seller expectations are broadly compatible, but that is different from setting a price before understanding the buyer's strategic rationale and your alternatives.

Should I talk to other buyers after receiving an acquisition offer?

It depends. A bilateral transaction can offer speed, confidentiality, and certainty. Testing interest with a carefully selected group of other credible buyers can provide price discovery and negotiating leverage. The right approach depends on the circumstances rather than a universal rule.

When should I sign an exclusivity agreement?

Usually only after you have sufficient confidence in the buyer, valuation, major transaction terms, and likelihood of closing. Because exclusivity reduces your alternatives, material economic and structural issues should ideally be addressed before it begins.

Do I need an investment banker if a buyer has already approached me?

Not always. The more useful question is whether an advisor is likely to improve valuation, terms, transaction certainty, process management, or management bandwidth by enough to justify the cost. The answer depends on the complexity of the transaction and the alternatives available.

How long does an M&A transaction take after receiving an offer?

There is no universal timeline. The process depends on company readiness, buyer diligence, financing, regulatory requirements, transaction complexity, and negotiations. Even apparently straightforward transactions can take several months from serious discussions through closing.

About BayTech Capital Partners

BayTech Capital Partners is a Palo Alto-based technology investment banking and strategic advisory firm focused on the lower middle market. We advise founders, CEOs, CFOs, and boards on mergers and acquisitions, capital raising, valuation, and strategic finance, with particular expertise across fintech, SaaS, AI and data, semiconductors, and emerging technology.

Received an acquisition approach or considering strategic alternatives?

A confidential conversation before responding to a buyer can help clarify your options.

Contact:info@baytechcapital.com
Website: baytechcapital.com

This article is for informational purposes only and does not constitute investment, legal, tax, accounting, or other professional advice. Securities-related services, where applicable, are conducted through appropriately registered entities.