Is your business vulnerable to a “bear hug?”

Your business has been doing so well lately that you and your partner have been in celebratory moods, having weathered the uncertainties of 2020. But could you possibly be doing too well?That sounds nearly impossible, but companies that are up-and-coming and making names for themselves can attract some perhaps unwanted attention from larger business entities. This type of attention can make a business vulnerable to what is known as a “bear hug.”

What is a bear hug?

In the business world, bear hugs are purchase offers made by usually much larger companies to acquire a smaller company’s shares at an inflated rate compared to that offered by the marketplace. These offers are made when the company’s owners and/or shareholders are resistant to selling.

Why you could be forced into selling

You might think that nothing could make you sell your “baby,” i.e., your company. But the bottom line is that if you have shareholders, your loyalties must align fully with their best interests. In fact, this is more than just a moral imperative — it’s your legal obligation.

There is some good news

In the corporate world of acquisitions and development, a bear hug is definitely preferable to a hostile takeover. While the end result may remain the same in that your company gets taken over by a larger business entity, your bank account will be much healthier than it would in the event of a hostile takeover.

You have options to negotiate

With most bear hugs, the company being taken over has fewer options for negotiating. But fewer does not equal none, so now is the time to bring your negotiating skills to the table. Your business law attorney can help you strategize to make the most of these challenging circumstances.

Can a company refuse a bear hug?

This is not a wise move, as it leaves you wide open to litigation from shareholders because you could be perceived to not be acting in their best interests. A better option is to make the best of an unexpected situation through negotiations that benefit both you and your shareholders.