The Site Visit – Tips from the Trenches
By Greg McKinley, Managing Partner
Nashville Office, Corporate Finance Associates
When the physical facilities of a company are an integral part of the assets in a business sale, a buyer’s due diligence team will usually insist on a site visit. For the buyer, this visit provides the opportunity to see the day to day operations of the business first hand. From the seller’s perspective, the site visit should be well planned, well executed and focus on the little things that can add value to a transaction.
At a very basic level, a site visit validates what the seller is representing about the business… the size of the facility, inventory, machinery and equipment, etc. In addition, a buyer may insist on seeing maintenance logs to ensure the equipment has been well cared for and that all permits and licenses are current. But the buyer’s due diligence team is also looking for subtle clues that may point to the success or failure of the merger or acquisition as a whole. Will the cultures of these businesses mesh? Is there redundancy? Do these businesses have the same focus on quality and integrity and if not, will these businesses be able to overcome their differences?
Before the site visit, the seller and his investment banker should conduct a walk through of the facility and make note of any cosmetic details that can be improved upon. During the site visit stage, the facility should be as uncluttered and clean as possible. Bathrooms and lunch rooms should be clean. Desks should be neat. Floors should be swept. Machinery or equipment no longer in use should be stored out of sight. These small acts of cleanliness are not economically burdensome, so they should be mandated. If there are resources to allocate, redecorate the lobby, replace the worn carpet or furniture. If you do own the real property, make sure the grass has been mowed, the weeds removed and the fences painted. You’d be surprised how small things tend to make a big impression. Conversely, it’s also the small things that can make a bad impression. If the buyer is used to a spotless facility, and the site visit reveals a messy plant, the two organizations just might not be a match.
Most sellers want to keep an impending sale under wraps, so confidentiality during a site visit is a key concern. There are many creative ways for buyers to conduct a site visit and remain incognito. Buyers can represent that they are providing ancillary services to the organization like insurance or marketing and that a site visit is required. If vendors visit as a matter of course, simply put a “Welcome ABC Company” sign in the lobby and say nothing else. Announce a contemplated joint venture… or just say nothing at all. The buyer’s team should try to keep a low profile and try not to attract any undue attention. If dress casual is the attire of choice, a buyer’s team wearing business suits may not be helpful. Arriving in a “stretch” limousine is probably not a good idea either.
While touring the facility, buyers may want to inspect equipment and work areas and speak with key personnel. Buyers should be respectful at all times. One CFA Dealmaker recalls a facilities tour where the potential buyer actually went into the owners office, sat in his chair and put his boots up on the owner’s desk prematurely announcing his impending ownership. Unfortunately, this small action derailed a thus far well-handled transaction. Should the investment banker attend every site visit? It depends. Employees are very observant and may remember the same person on multiple site visits. However, it can be helpful to have your investment banker manage the site visit on the ground, answer sensitive questions and handle necessary transportation details to and from the facility. Out of town buyers are usually on a tight travel schedule and nothing sours a site visit like a missed flight.
Today’s technology does afford business buyers and sellers an alternative to the traditional site visit. With the use of video and password protected Microsites, virtual tours and management interviews can be uploaded to the internet and buyers can peruse the facility from the comfort of their own office. Some businesses will hire professional videographers to capture the essence of their business on “film” but others will find the video shot from their iPhone sufficient to get the point across. Management interviews and facilities tours are then uploaded to a website where password protected access is granted to buyers. In addition to video and interviews, information about the company such as financials and descriptive reports can also be provided in the Microsite. Microsite tours may not eliminate the need for site visits in every case, but they do give a prospective buyer a realistic picture of the facility and those currently in charge.
For most business owners, selling the company into which they have poured “blood, sweat and tears” happens only once in a lifetime. There’s only one chance to get it right. The site visit is a small part of this process, but it is a part that is under your control. The site visit when well planned, managed and executed can only add value to a transaction.
NOT ON OUR DISTRIBUTION LIST?
If someone forwarded this newsletter to you and you would like to
continue to receive future issues, please
sign up now.