General

Top Tips to Prepare for a Successful Sale / Merger or Acquisition Transaction

M&A Strategy Services
  1. Organize the business for its sale two to five years in advance by preparing a business plan, tracking performance against the plan, and providing a credible blueprint for continuing growth.

Frequently, buyers do not exactly know how to grow a business.  A business plan with specific steps for future growth will bring more value because the buyer has increased comfort the company will achieve continuing prosperity.

  1. Audited Financial Statements: While an accounting firm’s “review” is a bare minimum for a company in the process of selling, it would be well worth the effort and expense to have audited financial statements for several years before the company is presented for sale. An audited validation of inventory, receivables, notes, etc., is most assuring for a buyer.  Only audited statements will satisfy a buyer’s complete scrutiny.
  2. An owner needs to sell his business from a position of strength. The extra dollars invested for an audit together with management information systems will be returned several times over in the purchase price.
  1. High Quality Management: Usually if the selling company’s CEO will remain on the job for several years after the company is sold, it will add value to the purchase price.

If the selling company has numerous family members on the payroll, it is considered a negative.  Therefore, the selling company might be wise to have those family members under contract with a specific buy‑out clause.

With appropriate discretion, it is effective if the owner can “show‑off” top management to a prospective buyer.  A buyer is especially influenced when top management is well versed in the company’s strategy, goals, and its position in the market.  Conversely, what is most damaging for a seller occurs when he is perceived as a “one‑man‑band” as opposed to being a team‑oriented organization.

  1. Negotiate “stay agreements” with top management so they will not jump ship before the business is sold. Depending on the situation, the importance, and the number of people involved, a stay agreement could range from two to six months’ salary.
  2. Set up a complete file of all relevant information in one place anticipating what the buyer and/or his due diligence team will ultimately request (g., contracts, distribution and purchase agreements, leases, licenses, intellectual property documents, etc.)
  1. As a seller, be prepared to accept lower valuation multiples for lack of management depth, reliance on a few customers, and regional versus national distribution.
  1. Settle all litigation and environmental matters before discussing a sale of the business. Litigation and environmental problems can be deal breakers.  Resolve those problems in advance of discussions.
  1. Selling out doesn’t mean saying good-bye. To attract top dollar for a business, more entrepreneurs find they must stick around and keep working after the sale. 
  1. Sellers are often selling their legacy; and thus, the dynamics of a sale are often more important than the highest offer. The preferred buyer, in the eyes of the seller, may not be the one offering the most dollars, but rather the one who has the best intentions, the best chemistry, and/or the best credentials.

Conclusion

Successful “sales/M&A transactions” do not just happen.  If you do not have a good dealmaker on your team, employ one, rent one, but get one.  An experienced dealmaker can expertly help package the important wants and needs of all parties, advise on options, negotiate as a middleman, and coordinate all parties to a successful closing.

If you desire peace of mind to achieve a successful M&A deal for your business, then you owe it to yourself to talk with C.V. Lemmon & Co.  The firm provides hourly M&A consulting services.

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