The approach may come completely out of the blue: an informal conversation at a trade fair; or a manila envelope that lands on your desk one morning.
Either way, few entrepreneurs can resist the temptation to find out what's on the table. And if the price for your business is right, you may well be tempted to sell. But how do you get the best offer, and strike the deal?
THINK AHEAD. Dealing with bid approaches can be distracting for a management team, says Ian Armitage, the chief executive of Mercury Private Equity. Better for the shareholders to formulate a policy in advance. 'If you are about to be threatened by a new technology, it may be better to sell sooner rather than later. Likewise if there is no succession to existing management. The more shareholders there are, the more important it is to think it through.'
FIND OUT IF THEY ARE SERIOUS. Beware of competitors simply fishing for information. Jamie Paton, a director of 3i, suggests: 'Ask them a lot of open questions. Why do they want to buy the company? What do they want to do with it? Who's going to run it? And do they understand the business?' Find out if they have the financial resources in place and have appointed advisers. If they have bought other companies in the past, talk to the sellers. And establish that the person you are dealing with is authorised by his or her company to make acquisitions.
CALL IN ADVISERS. If you are interested in selling, you will need corporate financiers, lawyers and probably tax advisers on board. Organisations such as the British Venture Capital Association may help to find the most suitable advisers. Bear in mind that on a sale, it is more important to get the detail right and realise the best price than to plump for whoever charges the lowest rates. The earlier you bring in advisers, the wider your options will be, according to Howard Leigh, a director of Cavendish Corporate Finance. Choose a corporate finance adviser you can be sure is on your side. If the buyer is an acquisitive conglomerate, your adviser may have half an eye on future business.
DON'T GIVE AWAY TOO MUCH. The would-be buyer will want to look over your books. Don't let them see anything until you have an indicative valuation worth entertaining. Marco Compagnoni, a partner in the M&A department at lawyers Lovell White Durrant, says: 'Let them have your accounts, and title deeds to property, but keep back sensitive information such as customer contracts until later in the process. You can get them to sign a confidentiality agreement, but you don't want to be suing them for the next two years if it goes awry.' Leigh suggests one technique is to demand 'parallel disclosure' between vendor and buyer - I'll show you mine, if you show me yours.
LOOK FOR A COUNTER BIDDER. Even if the first offer is higher than expected, your advisers may recommend an auction of the company or bring in other potential buyers. After all, if one buyer identifies value in the business, the likelihood is that others will as well. At the very least, you should raise the stakes - ideally, they may end up bidding against themselves.
BE WARY OF EARN-OUTS. It might suit you to carry on running the business once you have sold, and you could be offered a tempting package to do so. But make sure you get the maximum cash upfront because, once you have sold, there is no guarantee about future payments.
DON'T TELL PORKIES. The largest part of an acquisition contract is taken up with warranties and indemnities. If debts turn bad, or customer contracts fail to materialise, or litigation surfaces, you could find yourself with significant liabilities a year or so down the line. So, apart from having your lawyers restrict such conditions as much as possible, it is best to be honest in disclosing the true state of affairs. Once you've done so, it's caveat emptor.
DO SAY: 'As you can imagine, we get dozens of approaches to buy this business. It would have to be an extremely attractive offer for us even to consider it.'
DON'T SAY: 'That sounds like a brilliant deal. Come round tomorrow and I'll let you look at whatever you want.'.