Did You Receive an Offer to Buy Your Company? Read This Before You Respond

For owners, CFOs, CIOs and management teams already in a sale process

An offer can feel like the finish line. In practice, it is closer to the starting point of the part of the process where most sellers, whether that is the owner, the CFO, or a wider management team, quietly lose a substantial part of what they thought they had agreed. I want to explain why that happens, and what to do about it.

The Part of the Process Nobody Warns You About

When a buyer makes an offer for a business, they rarely arrive alone. There is usually a corporate development director who has completed dozens of acquisitions, an experienced M&A lawyer, an accountant reviewing the financial statements for weaknesses, and a negotiator who does this for a living. Every one of them has a clear brief, and none of it is to look after the seller's interests, whether that seller is a founder, a CFO acting on behalf of the shareholders, or a management team running the process together.

When that offer arrives, you typically have a solicitor and an accountant of your own. Both are competent professionals doing what they are trained to do. Neither is doing what the buyer's team is doing. Your solicitor makes sure the legal documents work correctly. Your accountant makes sure the tax position is managed properly. Neither is assessing whether the commercial terms are fair, whether an earnout has been structured against you, or whether a working capital target will quietly erode the proceeds at completion.

I have sat on the other side of this table often enough to know that this gap is not an accident. It is simply what happens when one side of a negotiation is professionally represented and the other is not.

A significant part of the gap between what a business is worth and what its owner actually receives is created after an offer arrives, not before. A disclosure made too early, a document that gives away more than it should, a concession made under pressure, a negotiating tactic missed or mishandled. None of this replaces the need for proper preparation from the outset, but even a well-prepared business can lose significant value after receiving an offer.

The Five Ways Sellers Lose Money After Receiving an Offer

These are not unusual cases. They are the same handful of situations I encounter again and again in unrepresented sales, and each one is worth understanding before you respond to anything.

1

Accepting the first offer without testing the market

An offer from the first buyer to approach you is their opening position, not their final one. Without competitive tension, meaning other buyers who know an offer is on the table, you have very little leverage to improve the terms.

2

Agreeing to exclusivity before all terms are settled

Once you sign Heads of Terms and grant exclusivity, the competitive tension disappears and the buyer controls the timetable. Every unresolved point will be renegotiated during exclusivity, on the buyer's terms.

3

Accepting a price reduction during due diligence

This is known as price chipping, and it happens on purpose, not by accident. Some of the issues buyers raise are real. Others are exaggerated. Either way, it's a hard thing to judge calmly when it's your own business and your own numbers being picked apart. Without someone experienced in your corner, it's very easy to give away more than you need to.

4

Signing an earnout without understanding the mechanics

An earnout can look like it adds significant value to the deal, but that value depends entirely on how it is structured. If the buyer sets the targets, or the definitions let them adjust the numbers after completion, it can end up worth very little.

5

An unexpected working capital adjustment at completion

One of the least understood parts of a sale, and one of the most common sources of dispute. If the target and methodology are not agreed precisely up front, completion accounts can reduce the final price significantly.

What to Do When an Offer Arrives

The most expensive mistake most sellers make is responding straight away. In the first two days after receiving an offer, it is easy to share too much financial information before any confidentiality agreement is in place, to sound too keen and signal there is no competing interest, or to ask questions that reveal advice has not yet been taken. None of this is foolish. It is simply what happens when someone unfamiliar with the process is placed under sudden pressure.

The right sequence is straightforward, even if it is rarely followed.

1

Acknowledge, but do not respond substantively

Confirm receipt and make clear you are taking advice. This is not evasive. It is exactly what any experienced seller would do.

2

Get an independent valuation

You need to know what your business is genuinely worth to different categories of buyer, not simply what this buyer has proposed. See our Business Valuation page for how ETSC approaches this.

3

Engage an experienced sell-side adviser

Not just your solicitor or accountant. Someone whose role is to protect your commercial position from the initial valuation through to completion.

4

Assess whether other buyers should be approached

Even if you like the buyer in front of you, knowing other parties could be interested changes your negotiating position considerably.

5

Agree every material term before granting exclusivity

Price, structure, earnout mechanics, working capital target, and warranty caps and baskets. A buyer who presses for exclusivity before these are settled usually intends to negotiate them once your options have narrowed.

What Heads of Terms Actually Commit You To

Heads of Terms, sometimes called a Letter of Intent, set out the principal terms of the proposed transaction. In most UK business sales, the provisions relating to price are not legally binding, though the exclusivity clause usually is.

This distinction matters, because many sellers treat the signing of Heads of Terms as the conclusion of the negotiation. For an experienced buyer, it is closer to the beginning of the real one. Once Heads of Terms are signed, you have usually granted the buyer exclusive access to your business for sixty to ninety days. During that period they will run due diligence, look for issues, and use whatever they find to try to reduce the price or improve the terms in their favour. You will have little or no competitive tension left to rely on. Walking away at that point means starting again from nothing, often with the wider market now aware that a previous deal fell through.

The rule worth remembering is that everything commercially significant should be agreed before Heads of Terms are signed, not just the headline price. You can read a fuller explanation of how this works, and how exclusivity is often used against sellers, in our article on the exclusivity clause.

Where ETSC Fits Into This

Most advisory firms only want to run a transaction from the very beginning. I take a different view. I work with owners, CFOs, CIOs and management teams at whatever stage they happen to be in, whether that is an initial approach that arrived last week, early discussions already under way, a formal offer sitting on the table, or a due diligence process that has already started.

The earlier I am involved, the more options remain open, but it is genuinely never too late to bring in experienced representation. If you are already in due diligence and unsure how to assess an issue the buyer has raised, I can step in immediately. If you have an offer in hand and want to know whether it is fair, I can usually tell you within a matter of days.

ETSC works exclusively on the sell side. I represent sellers only, with no dual mandates and no conflicts of interest, and every engagement is led by me personally from beginning to end. I advise on business sales across the UK and Europe, with particular depth in technology, professional services, and wellness and leisure businesses, and typical deal sizes between one million and fifty million pounds of enterprise value.

Frequently Asked Questions

I have received an offer to buy my business. What should I do first?

Do not respond immediately, and do not share financial information before taking independent advice. The first step is to obtain an independent valuation so you know what the business is actually worth before engaging with the buyer's terms. The second is to ensure you have experienced sell-side representation before entering any substantive discussion. An offer is the beginning of a negotiation, not the end of one. The buyer has almost certainly done this before. You probably have not.

Is my solicitor enough to handle the sale of my business?

A solicitor handles the legal mechanics of a business sale: the share purchase agreement, warranties, indemnities, and the completion process. A solicitor does not assess whether the commercial terms are fair, whether the earnout is structured against you, whether the working capital target is reasonable, or whether the headline price reflects the true value of the business. You need both a solicitor and an experienced sell-side adviser. The solicitor protects you legally. The adviser protects you commercially.

What is price chipping and how do I protect against it?

Price chipping is when a buyer uses findings from due diligence to reduce the agreed headline price after Heads of Terms have been signed. It almost always happens once the seller is in exclusivity and has no remaining competitive tension. Some issues raised are genuine. Others are presented with more weight than they deserve. The only effective protection is to have an experienced adviser who knows which issues justify a price reduction and which do not, and who is prepared to hold the line when the buyer applies pressure.

What are Heads of Terms and are they legally binding?

Heads of Terms, sometimes called a Letter of Intent, set out the principal terms of the proposed transaction: the price, the structure, the earnout mechanics, and the exclusivity period. In most UK business sales, the price-related provisions are not legally binding, but the exclusivity clause is. Once you sign Heads of Terms, the competitive tension disappears and the buyer controls the timetable. This is why all material commercial terms, not just the headline price, must be fully agreed before Heads of Terms are signed.

What is an earnout and is it risky?

An earnout is deferred consideration tied to the future performance of the business after the sale. Part of the purchase price is only paid if the business hits agreed targets after completion. The risk is that the buyer controls the business after completion, including marketing, pricing, headcount, and strategy, and therefore influences the variables the earnout is measured against. Earnouts can be structured fairly, but they are frequently structured in ways that make the targets difficult to achieve. Every earnout should be reviewed by an experienced adviser before it is agreed.

What is a working capital adjustment and why does it matter?

A working capital adjustment adjusts the final purchase price to reflect the level of working capital in the business at completion compared with an agreed target. If working capital at completion is lower than the target, the price is reduced. Working capital adjustments are one of the most common sources of dispute after completion, and one of the least well understood by sellers. The target, the methodology, and the definitions of what counts as working capital all need to be agreed precisely before Heads of Terms are signed.

Can ETSC step in if I am already in negotiations?

Yes. ETSC can be engaged at any stage of a transaction, whether you have just received an initial approach, are in early discussions, have received a formal offer, or are already in due diligence. The earlier we are involved the more we can do, but it is never too late. Mid-process intervention is one of the most valuable pieces of work we take on, because the decisions being made in that phase have the greatest influence on what you actually walk away with.

How do I know if the offer I have received is fair?

The only reliable way to know whether an offer is fair is to obtain an independent business valuation carried out by a qualified valuer who understands the sector, the deal structure, and what comparable businesses have actually sold for. A buyer's offer is their opening position, not a fair assessment of what your business is worth. ETSC produces formal, multi-methodology valuations that show exactly where an offer sits relative to the true market value of your business.

Talk to Me Before You Respond to Anything

A confidential conversation about your situation. No obligation. I can step in immediately, wherever you currently stand in the process.

Book a Free Consultation

Zach Dogar

Founder, ETSC Company Sales

Zach is a formally qualified business valuer (IMAA/ACCA/IIBV), a Fellow of the Institute of Consulting, and one of the most experienced Value Builder Certified Advisers in the UK. He has 30 years of M&A transaction experience across the UK and Europe. Read more about Zach →