InSight

Exit and Growth Strategies for Middle Market Businesses

Selling Your Business Is Not An Event… It Is A Strategic Process – Part III

By Terry Fick | Nov 15, 2018

Part III

Remember,
Selling your business is not an event… It is a strategic Process.

More Conversations
Now that the prospective buyers have reviewed the information in the Data Room,

  • Be prepared to answer questions that stem from their review of the information supplied.
  • There may be another round of Q&A.
  • Ask what information he needs to be able to at least discuss a value range (IOI). DO NOT let him corner you into giving him a price!

With their NDA in place and having received his request for information for their IOI,

  • Populate the data room with the additional data requested, as long as it does not reveal truly sensitive information. You might segment the Data Room to manage the release of that data.
  • Once you have made the decision to give the buyer access to the data room. If there is a broker on their side, do not directly give him access to any of this information.
  • Answer questions about the data provided and wait for his indication of value.

Controlling the Negotiations

Assuming you get multiple indications of interest (IOI’s)in the right range, you will want to orchestrate this process so that visits by these prospects are around the same time. That should lead to getting multiple LOI’s at about the same time, so you can compare them before accepting one LOI.

LOI’s

  • Solicit multiple initial LOI’s before negotiating a final agreement
  • You are exclusive with one party while under LOI
  • LOI’s are mostly non-binding, but:
    • Price and Terms are obviously spelled out in detail.
    • Capital Structure to be employed
    • Your and maybe some of your management team’s roles and compensation should be addressed.
    • Structure of the transaction (stock or asset), how your debt will be eliminated, working capital, escrows
    • Timeframes, 90 days?
    • No Break Up fees!
  • Full disclosure after agreement

Suggestions:

  • Involve your CFO very early in the process. He or she can often access and provide the information needed more efficiently than the owner.
  • Involve your other top-level managers when you start to have substantial calls or visits with potential buyers. They will be important to the buyer. Let those managers know you plan to find a deal that is good for them. Before that, you may want to consider if and how you might want to reward them when a deal closes.
  • Think one step ahead so you can be prepared to give timely responses to questions, offers, situations and obstacles.
  • Do not be afraid to identify your company’s “shortcomings or issues”. If you identify them, they are just warts, if they find them, they are cancers.

Summarizing Some Do’s and Don’ts:

Do’s:

  • Have an idea of what your company is worth before you even start responding.
  • Make sure you are talking to an actual buyer, not a “broker” on a fishing trip.
  • Qualify the buyer before you start giving up information.
  • Always get an NDA in place prior to giving up information.
  • Create a sense of competition even if you are only talking to one party.
  • Make sure to spend some time preparing. Get your information ready and organized.
  • It’s more than OK to brag about your business and talk about your plans for growth. That is what all buyers are interested in.

Don’ts:

  • Never give a price or directly state the value you expect.
  • Don’t Let a broker gather information to “give to his client” unless his client directly asks you to do so.
  • Don’t give out competitively sensitive information like customer names until you are under LOI.
  • As earlier suggested, talk to multiple buyers at one time rather than one at a time sequentially.
  • Try to avoid bi-lateral NDA’s. You gain nothing by signing one.
  • Do not sign an LOI until you get legal advice. While they are non-binding for the most part, a well written LOI can save much time and aggravation down the line. It gives you the chance of previewing how a buyer will negotiate.

In Summary:

  • Take control of the process. By simply responding to all of their questions and demands, you lose that.
  • Keep thinking like the buyer. It is like selling your product or service, always determine what they want/need before you start your sales pitch.
  • I would assume this would be the largest financial transaction of your life, don’t take it lightly.
  • Remember:

  Selling your business is not an event… It is a strategic Process.


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