Should You Entertain That Acquisition Offer?
Ignoring any unexpected offers to buy your business that might come your way is not in your best interest. But neither is dating all opportunities in desperation. David has four things principals should consider, whether or not you are actively looking to sell your firm.
Links
“Should You Entertain That Offer?” by David C. Baker for punctuation.com
2Bobs London Meetup on Thursday 8 May, 2025 at 2pm
Transcript
Blair Enns: All right, David, the topic today is should I entertain that acquisition offer? Should I, Blair Enns, entertain this acquisition offer?
David C. Baker: Somebody offered to buy you? Is that what you're saying?
Blair: No.
David: You're asking for advice?
Blair: [laughs] Is this a post? Have you written on this yet, or are these notes for my edification?
David: It's a post. Yes. I write a lot of really good things, which I'm surprised you don't.
Blair: People keep saying this.
[laughter]
Blair: I look forward to reading them one day.
David: One day.
Blair: One day.
David: Yes.
Blair: Should you entertain that acquisition offer? Why this post? Why now?
David: There's more M&A activity now than there ever has been. That's part of the reason for it. You're sitting here running a firm and somebody sends you a fax. No, it's probably not a fax.
Blair: A telex.
David: Every once in a while. Somebody sends you a note. It's usually an email. Nowadays, it could be a phone call. They are representing such and such a buyer and they want to know if you're interested in selling. The typical principal probably gets two of these a week, I would guess. The question is, what should I do with these, right? You're trying to avoid either extreme. On the one extreme, you never entertain any of them, which is like my dating experience in high school where I dated two people.
I'd rather not get into why it was only two people. Then the other extreme would be, I don't know, maybe it was you, Blair. How many people did you date in high school?
Blair: Not many.
David: Not many. Okay. You don't want to entertain none of them. You don't want to entertain too many of them, too. Should you entertain that offer? The argument is yes, but with an asterisk, like there's certain things that you want to think about before you do. You should. It's a good thing to do as long as you are careful about how you do it.
Blair: Okay. This is a topic for the business owner who is not actively looking to sell their firm but does occasionally get these inbound inquiries, "Hey, would you be interested in selling?" Is that about it?
David: Yes. Exactly right.
Blair: I delete all those things. I just assume there's nothing to them. After I read through your notes here and highlighted some things, I thought, "Oh, maybe I should pay attention." Maybe I should use this framework that you've laid out here to just not dismiss them completely out of hand.
David: Yes, because it would be really interesting to know what the exact mix is. There are really two ways essentially to sell your firm. One is to conduct a search. There you hire a firm. We do that sort of thing. There's about a dozen firms that do that. You hire a firm to conduct a sell-side search for you. The other way to do it, and my just rough guess is it's probably half and half, is that some opportunity comes to you organically apart from a search and you don't know what to do with it.
When you think about just philosophically the difference between those two, it's very different. Because when you are looking for a buyer, you don't have quite as much leverage sometimes. If you're not looking for a buyer and somebody comes up to you and says, "Hey, would you be interested?" It feels a little bit better, right? Because you weren't necessarily looking for it. In that case, when you're not hiring somebody to conduct a search for you, then you should entertain certain offers if you do it the right way. You should do that on your own.
You should not hire an M&A firm like ours to help you with that in the early stages. Now, if it gets to a certain point, then it's a good idea to bring somebody else in. You should respond to these offers that come to you organically every once in a while as long as you stay out of trouble doing it.
Blair: Okay, that makes sense. You have a four-point framework here. I'll list the four points, and then we'll go into each of them in detail. Four-point framework on how to think about these things that do come in via email or fax from time to time. The first one is be open to opportunities. Don't be completely closed to it the way I am. Second, make quick judgment calls about which ones to pursue. Some sort of heuristic about how you decide whether or not to take one seriously or not. Third is approach the first one as a student. I really like that. I have some questions on that. The fourth is to limit your investment in the sale.
David: That's a concept you're familiar with, I presume, right?
Blair: Yes. Yes. Do not overinvest. No sunk costs. I think we talked about this in other episodes. When I try on the idea of maybe selling the business at some point in the future or when I try on the idea, typically through my clients of them engaging in selling their firm, I think of the emotional sunk costs of getting tied up into it. It just feels to me like you're in a really vulnerable position. We'll come back to that. I'm getting ahead of myself here. Step one or the first point is simply to be open to opportunities. This point you make here about if you're not completely closed, maybe part of your brain is scanning for these signals that you might otherwise miss if you were completely closed.
Am I characterizing that correctly?
David: This might be fun to do. It's never really occurred to me before. You know what episode we did quite a while ago where you said, just live within this artificial constraint that you can never sell your firm. That was a new thought to me and it spurred all kinds of interesting conversations and I've thought about that quite a bit. What if you flipped that around though and said, "Pretend that you had to sell your firm? How would you listen to conversations differently?"
You would pick up a few things and sometimes you'd pick them up from a client who represents a client concentration challenge where you've just had this big win together and you go out to celebrate at dinner and after a drink, the client says, "Ah, we should just buy you all. We keep doing such great work together." In the pre-signal days, that wouldn't even register on your consciousness. With a different station tuned in, you think, "Oh, I'd never really thought about that possibility. I wonder if he's really thinking about that. I should joke back like, "Yes, you can't afford us," but it probably does make sense."
It's just recognizing that many of these opportunities just happen organically or maybe it's you working with another agency, you share a great client together and you realize how similar your cultures are and how there's very little overlap between your service offerings and how the client is so much better off because of this. Neither one of you is white-labeled. It all works together. Maybe there's a principle that it's sort of like an informal advisory board where you have this transparent relationship with this other principle and you've learned how ethical they are, how well they think, how transparent they are about their struggles, and so on.
All of a sudden you start to see how a hand fits inside of a glove. Being open to opportunities, it's really important for this not to be construed as some sense of desperation. It's more like, "Hey, I'm really good at what I do. This firm is really strong, but the future could look very different." It's just interesting to think about those things, just dream about those things. It's not out of desperation, it's just out of, wow, there are so many ways we could take this. I just want to listen. I'm very confident in what we do. We have a strong marketing plan. We run this thing like a tight ship, but why not? Let's just listen to things. That's the whole point.
Blair: As you're talking, I am really processing this in a way that I haven't previously. It just makes me realize, I could think of other domains, but this idea of open to selling the business versus not, I wrote something almost 10 years ago, maybe it was over 10 years ago now, about how I plan to die with my boots on in this business. I have said before that I have had moments of weakness where I have considered it, but it's still largely in my plan moving forward. As you're talking, I'm thinking, and I could think of lots of our clients, my clients, your clients that we share, where they really are buy and build people.
They're more proper entrepreneurs than you or I. You and I are entrepreneurial, but we've really built these individual businesses that are largely lifestyle businesses. We're not entrepreneurs the way serial entrepreneurs buy, sell, build, merge businesses. Now, you with your M&A hat on, you probably regularly look through this lens of what could be different or better if you tacked another firm onto this, if you sold to so-and-so, et cetera. I'm using myself as a surrogate here for what I assume is a large part of the listener group, which is, I just don't think that way.
There are probably all kinds of doors that are closed to me because I am not open to those opportunities. I'm not listening. I imagine the typical owner of a typical creative firm, whatever that means, probably is wired similarly, where they don't have a part of their brain, maybe a more entrepreneurial part of their brain, working on, well, what if we added this? What if we merge with these people, et cetera? There's a whole other avenue or set of avenues available to growing the business, taking it to the next level.
David: Yes. If you think through Darwin's contributions to how we evolve and so on, I think that society has evolved around us in a way that our psyches have not caught up at all, and it might be another 100 years before we do. I still think internally, subconsciously, we're still operating like we're going to have one career all our lives, like two generations ago did, like our grandparents did. That just isn't the case anymore.
In fact, you can have three, four, five really great, satisfying careers that have very little to do with one another, where you've used one as a stepping stone to the next. M&A could be a part of that. I just don't think subconsciously we've gotten to the point where we accept that idea. We're just thinking, "Ah, I'm going to do this until I'm however old." I think we just need to be open to all kinds of other things that could happen.
You and I both know thousands of firms between us, and there have been some remarkable stories of transitions where somebody has gone on to do something else that has nothing to do with this marketing or digital field, and they have been wildly successful. That's because they've listened to those opportunities differently.
Blair: Hey, everyone. It's Blair. David and I will be in London together in May, and we've decided to host a 2Bobs meetup on Thursday, May 8th from 2:00 to 4:00 PM somewhere near London Bridge Station. If you're in London and would like to attend, you can grab yourself a ticket at 2bobs.com/events for a nominal fee. We're just going to hang out for a couple of hours, maybe have a couple of pints, nothing really on the agenda other than a meet and greet. That's 2Bobs in London, Thursday, May 8th from 2:00 PM to 4:00 PM. Go to 2bobs.com/events.
Blair: Okay, I'm sold on your first point. Be open to opportunities.
David: There's three more.
[laughter]
Blair: There we go. There's three. Baker, you still have a hill to climb. All right. The second one is make quick judgment calls.
David: Oh, you'll be with me on this one. This is your whole life. Quick judgment calls.
[laughter]
David: Oh, goodness.
Blair: All right, listener. No reason for you guys to keep listening. David and I are just going to work this out amongst ourselves.
[laughter]
David: Make quick judgment calls. The idea here is that you don't want to waste time. I think of this as driving through a small town at a reasonable rate where the lights seem to be timed. You're just assuming a green light, but you're watching the lights, and as soon as one turns red, then you stop and like, okay, this is the end of that train. That's how you're approaching this thing. You're looking for lots of yeses until a big no. The no might be some cultural thing, or it might be the fact that they have no money, or that what they want you to do in this next life is not something you want to do, or they don't like your team, or whatever it is.
There's a hundred things it could be. You're just looking for really quick judgment calls, and in two categories, really. One is, if I wanted to sell, is this the person I'd want to be with for the next two or three years? That's the way you can maximize your earn-out. Then the second part of that is, do I really even want to sell? If you absolutely do not, well, then don't entertain the opportunity. If there's even the smallest part of you that says, "Oh, I should be open to this. I still have a lot more questions than I have answers, but I should be open to this." Then you keep going until a red light.
Blair: How's that? What happens when you hit the red light? Red light is not an amber light. It's like, no, stop. This doesn't work for me. I'm out.
David: Yes.
Blair: I'm in, in, in, out.
David: Then you slam the brakes and everybody crashes behind you. This is why you don't tell people you're pursuing this opportunity until later so there's no crash.
Blair: Got you.
David: Yes. You just stop.
Blair: I was waiting for you to mix the dating metaphor into the driving through red light metaphor, but I don't think we're going to get there.
David: My metaphors have been a failure today. I haven't mixed and matched them.
Blair: Make quick judgment calls. It's basically yes. Until you hit a red light. This will tie into the fourth point. First, the third point, I really like this idea of approaching early opportunities as a student. It just reminds me, I can think of so many conversations I've had with clients. The first time you try to raise money, the first time you try to do anything, it's like the first pancake, you're going to throw it away. You're not going to eat it. You're saying the first few times you do end up saying an early yes, and keep going further and further into the conversation, you would just understand that you're probably going to blow this anyway. Don't be too attached to the first one. Is that correct?
David: Right. Exactly. Your pancake metaphor, that's like the seventh time you mentioned that in the last year, I think. It's really a good one. I appreciate you throwing that in. You just always throw away the first pancake. That's just so true. The point of this third one, approaching early opportunities as a student, or maybe I should say approaching an early opportunity as a student, because you may only need to do one of these before you've learned enough where you're going to be pickier before you pursue any subsequent opportunities.
The point is that there is a lot you can learn about M&A by reading or talking with friends that have done it or whatever, but there are some things you simply cannot learn unless you're in it yourself. I mean yourself, not through some advisor that you might hire. You'll learn about how you're going to react to the idea of having a boss again, because you will have a boss again, about your real motivations, about how close you are to really giving up some of that control that you crave so much.
Even if what you do with your control isn't all that great, the fact that you have it is just, that's precious to all of us as entrepreneurs. What you want for your team. Because it's pretty easy to say all the right things about what you would do to do the right thing for your team. Then when it comes right down to it, when you have to make some of those choices, sometimes that's a different story.
Blair: Team, what team?
[laughter]
David: Hopefully your team is not listening at the moment. A few other dozen things that you just wouldn't learn. Mainly I'm thinking here of how the way you phrase things will land. They're going to ask you questions in this pursuit, and you're going to say something that sounds right, and you're going to see their reaction. You're going to realize, oh, maybe that wasn't the right way to do it. This is a learning process. You view it as going to school in a low-stakes environment as long as you make quick decisions and you abandon the pursuit once a red light. Learning opportunity, there's so many things you can learn.
Blair: Okay, so it's the first pancake metaphor applies yet again. Some of these things are really interesting. That joke I made about your team, when I read your note there, I had the same idea. It's like, yes, a lot of people say the right thing about how important culture is and who will be inheriting this team and this culture. Then somebody drops a bag of gold on your desk, and you realize that maybe you're not as attached to that as you claim to have been. Maybe the opposite is true. Maybe you haven't said a whole lot about how important your team is or the culture is, and you realize this would represent a dramatic shift in the culture, and you don't like the idea of handing your people over to this new organization, new culture.
David: Yes, or even you come to realize that all this culture stuff is real, but it has more to do with the person you want to be and how much you love working at this place. You're surprised at how little the possible acquirer cares about your culture too. That's another possible realization you're going to have.
Blair: You make the point under this banner of approach early opportunities, and I'll just read the line here. "At this stage be super careful about latching on to person who did one deal somehow making their experience normative." I feel like you've seen this before.
David: Yes, I'm talking about your neighbor who sold his car wash or your father-in-law who has lots to say about how you should do this, and he was in PE or something. Or an attorney in the family, right, who does family law and has nothing to do with this field. It's good to talk with other people. You really should talk with other people, but be really careful about latching on to one unpaid advisor who thinks they know everything but have only done one deal. Believe me, every deal is different. There are so many possibilities on the table, particularly if this is across state borders, across international borders, if it's a different kind of an acquisition, if the funding is different.
Just be careful about who you listen to. Talk to these people, but weigh it carefully. There's a lot of experts who sold one firm for a lot less than they want you to think who can steer you wrong, too?
[laughter]
Blair: That was a dig, wasn't it?
David: Yes.
Blair: All right. Our topic is should you entertain that acquisition offer? You have a four-point framework for thinking through these opportunities that seem to come in over the transom when you're not actively in the market. The first one is be open to opportunities. The second one is make quick judgment calls about which ones to pursue. The third is approach the first one as a student, the first pancake that you'll throw away. You'll get it wrong. The fourth is limit your investment in the sale, or another way to think about this is keep your business strong while you are entertaining the idea of that acquisition offer.
David: Yes, because it's so easy. Once you allow yourself to get excited about this and pursue it, even just mildly excited, then two things are going to happen. One is you're going to start dreaming about the possibility of a different set of expectations, being less in the people business, maybe the pot of cash that you got at closing, and so on. That's one thing that happened, you start to dream about that. It's harder to walk away from something after you've started dreaming about it. That's what you were talking about when we first started this episode.
This next part is more insidious, really, and it's scarier to me. That's that you will put off some big decisions that won't have much short-term impact but will have long-term impact. Maybe it's your rebranding or starting a new business plan that will take five months to see results or hiring that one person or building out that service offering design or whatever it is that you would have done to fix some defect in your business. You think, "Well, should I really do that? It looks like this might happen. It may not happen, but it doesn't make sense to spend money or energy on this while I'm pursuing this opportunity."
I'm here to say it does make sense to pursue whatever you need to do to close those gaps in your business, whether it's time or money, because you want your business to be very strong so that you can walk away from anything that you should walk away from. Even if you don't walk away from an opportunity, your firm will be stronger, which means you'll probably-- not always, but you'll probably earn more money during the earn-out because your firm is stronger. Run your firm as if it's not going to sell. Be open to sell so that when you do see these opportunities and decide to learn from them, especially that first one, you'll still be able to walk away from it pretty easily.
To tie all this together, the third and the fourth point, the real deal that you accept, you don't want it to be the first one you've talked about. You want to have learned about how this works by learning with an environment before and then always being willing to walk away from something. Now some people are just stubborn and courageous, but you really want to have all the cards so that you can negotiate strongly, still ethically, while this unfolds too. Anyway, that's the big point here.
Blair: Walk down two roads at the same time. Keep your sunk costs, especially your emotional sunk costs, under control so that if it falls apart, your plan B is a pretty strong one and you're not sacrificing the future of the firm. I've said this before. I cannot stand the idea of negotiating from a position of weakness. When you are all in emotionally on this deal going through, you are negotiating from a position of weakness. Disappointment is nothing but a function of expectation. If you're expecting it to happen and it doesn't happen, you're going to be deeply disappointed. If the buyer comes back with another condition, another concession that they need from you, you are going to be in no position to be able to push back.
David: Yes, this actually highlights something that happened just accidentally, honestly. Our business Punctuation is really two prongs. It's how to build a really strong firm and then how to sell it if you want to someday. I love the fact that we're appending this first part on here to make the firms that are actually selling a lot stronger. The mission feels really good to me. Help you be a really strong firm and oh, if you get a chance to sell, we'll help you with that too. Not just being here to help you sell. It makes a better story in my mind anyway.
Blair: Now, David, if there were a book that somebody wanted to read more about selling their firm, what book would you recommend?
David: It would not be Win Without Pitching, I'll say that.
[laughter]
Blair: It would be Selling Your Professional Service Firm, a Primer by David C. Baker. We've done an episode on that. We'll post a link in the show notes. Even if you're not actively selling, and that's really what this talk is about. It's for those who aren't actively looking to sell, your point is, well, part of your brain should be open to the idea and use this simple four-point framework. If that is you, then this is a pretty good book to read on that front. It's also a pretty good book to read, even though it's not the objective of the book. It's a pretty good primer on how to run your firm generally, even if you're not going to sell it. I'll do the plugging for you.
David: Thank you. I appreciate it. Also, here, open to sell, we maybe ought to flip this around too for people. Maybe you ought to be open to buy too. Think about that.
Blair: I'm thinking about it.
David: You weren't as excited about that idea.
Blair: [laughs] Thanks for this, David.
David: Thanks, Blair.