Preparing
for a Sale
After careful thought, and probably a few sleepless nights, you and your partners have determined that it is time to sell the business. The preliminary valuation work pointed to an acceptable range of estimated market values and hopefully, you have engaged in the professional services of a financial advisor to spearhead the effort. For many, this is a once-in-a-lifetime event. As with most such events, the process is likely to be unfamiliar and perhaps a little uncomfortable. But, you didn't get this far by avoiding the unknown. Now that you have a good idea about why you want to sell the business, the question is: "How?"
IN A NUTSHELL
A typical sale process can be broken down into the three broad phases:
1. Preparing for a sale.
2. Marketing the company, and
3. Negotiating/closing a transaction.
Though it sounds simple, here's some advice: Each phase is an important step toward giving you the strongest position at the bargaining table. Resist the strong urge to jump right to the marketing phase, and you'll reap the rewards!
PREPARE TO SUCCEED
It has often been said that successful business people begin to prepare their companies for sale the first day their businesses are established. While this may not be meant to be taken literally, it does highlight a key point: Most characteristics that enhance your company 's market ability take time to develop. It takes more than a little touch-up or a coat of paint to sell your business at a price you feel its worth. The presence of several of the following characteristics will significantly enhance your company's marketability to a credible acquirer and make it more likely that you will obtain a strong offer:
* Depth of management
* Clear top management succession,
* History of audited financial statements,
* Consistent reinvestment of earnings into operations, and
* Discipline of regular business plans/projections.
To the extent that selling your company is planned for some time in the future, addressing the above attributes and incorporating them into your operations now will go a long way to ensure meeting your financial objectives when the time is right to sell.
PUT IT IN WRITING
A major step in readying your company for market is the preparation of a descriptive memorandum. This document can range from 10 to 200 pages and is an initial compilation of materials hat will be distributed to interested buyers. The key to preparing this type of memorandum is to focus on its intended purpose: Accurately describe the company, its history, products, markets, personnel, facilities and financial performance in a way that highlights your organization's strengths and potential. When prospective buyers complete a review of the memorandum, they should clearly understand the company's unique investment merits, or "investments story."
Your company's investment story is introduced, supported and reinforced in the memorandum. It is designed to have each section build off others, constantly reinforcing the unique investment merits of the company. for example, there are many four bedroom colonials on the market. However, depending on the particular objectives of a buyer, the investment merits of greatest interest could include: a house that overlooks the ocean (location); one with a three-car garage (facilities); one that comes with a butler (personnel); or a house with ten acres of land. (growth potential).
The challenge is to design a selling document that compels potential buyers, particularly corporate ones, to believe that the opportunity to acquire your business is not just another investment, but is a chance to realize benefits and potential that cannot be duplicated in any other way.
From time to time your advisor begins an analysis of your company, preparing the selling memorandum can take four to six weeks. Multiple plant sites or other complications could extend this timetable several weeks.
TARGET POTENTIAL BUYERS
While the selling document is being prepared, you and your advisor should be developing a targeted buyers list. It is during this process that the advisor's knowledge of the merger & acquisitions marketplace will be extremely valuable.
Your advisor should have a feel for which qualified buyers are actively pursuing investment opportunities and a good sense of the attractiveness of your particular industry segment to such investors. Potential buyers usually fall into one the following categories:
* Direct competitors,
* Companies serving the same end user,
* Customers looking to capture channels of distribution,
* Suppliers,
* Companies using similar technology,
* Companies with counter cyclical products, and
* Investment companies (e.g.; LBO groups).
The list of initial buyers should be as broad as possible, incorporating potential buyers from all the categories above, both domestic and international. It is easier to start from such a universe and carefully reduce the numbers (usually through a system of setting priorities) that it is trying to add to a short list later in the selling process. Ranking potential acquirers from most to legal logical requires an assessment of how each of the following characteristics applies to a particular buyer:
* Potential synergistic benefits with current operations,
* Capital/financing to close a transaction,
* Experience in completing acquisitions,
* Previous knowledge of or involvement with company/industry,
* Geographical proximity to the company, and
* Announced intentions to grow through acquisition.
It is at this point that the first critical decision must be made: How broadly should I market my company?
A wide distribution of the descriptive memorandum increases the probability of achieving the best price, but also increases the likelihood of damaging your company by sharing sensitive information with too many people. Your competitors may be the "best" buyers, but they are also the ones who could inflict the most harm on your business if they are privy to confidential marketing and manufacturing information.
Because this decision sets the stage for the marketing process, we will address the pros and cons of narrow versus wide distribution in more detail in our next chapter.
MAINTAIN YOUR MOMENTUM
Once the decision has been made to sell your company, resist the strong urge to jump to the marketing phase. Investing time in the preparation phase is likely to pay off by putting you at a distinct advantage during negotiations. Remember, keep asking yourself: "What can I do now to eliminate a slowdown once the process is rolling?" For example:
* Complete the descriptive memorandum so that it can be distributed immediately when a strong prospect is identified.
* Ensure that your company's "investment story" is clearly understood and supported by senior management, particularly those who will have regular contact with potential buyers.
* Anticipate the buyer's basic due diligence and gather information as early as possible.
* Adjust your corporate structure to eliminate certain asset classes (e.g., real estate remaining with owners) that the owner may not wish to sell.
Once you have began preparing your company for sale, your momentum will maximize the strength of your bargaining position. With few exceptions, the best prepared companies: 1. find the M&A process to be the least disruptive to current operations, 2. are able to generate and handle the greatest number of potential bidders, 3. command the highest price multiples.
VALUE IS IN THE EYE OF THE BEHOLDER
There are more buyers out there for your company than you might think. Coopers & Lybrand professionals advised on the sale of a company that manufactures steel cutting edges on snow plows and agricultural equipment. The sale process is extremely competitive, attracting a wide spectrum of buyers, each with its own specific interest in the company.
Some investors were interested in the seller's strategy earnings stream, while others saw great potential in selling additional products through the company's existing distribution channels. One investor was enamored with the company's preferred status with the major international steel manufacturers, while another wanted to acquire the seller because it was counter cyclical to its current operations. The point is: The potential buyer universe may far exceed what would appear, on the surface, to be the logical buyers.
Read our special reports concerning selling a business. The next step is to call us at 610-353-8244 or fill out our simple information request form, and a Business Exchange Network professional will contact you immediately.
