03 Mar Considerations When Selling Your Company
The M&A process is a major undertaking, demanding a comprehensive approach to HR, legal, financial issues, and more. To effectively navigate this challenging and often disrupting undertaking, here are 12 key points you need to consider as you move through the M&A process.
- Multiple bidders will offer the best deal. It’s simple supply and demand. When more people are interested in a company, it creates a competitive bidding landscape that can elevate value.
- Valuation is negotiable. Price and valuation are never objective. You need to look to market comparables, as well as asses the buyer’s motives. Your company’s recent performance, especially as compared to competitors, may be the biggest factor in the deal, but it’s far from the only one.
- The process can be a long one. Even after you’ve found a buyer, the negotiation and closing process can take several months. A lot of this depends on how eager the buyer is and how quickly you move through due diligence.
- Due diligence will be very involved. Many sellers are not prepared for the amount of time due diligence demands. This is a significant investigation into the inner workings of your company, and will include a contract review, financial investigation, intellectual property analysis, and more. In private acquisitions with few or no public records, due diligence typically takes much longer.
- Get an investment banker on your team. You’ve probably never sold a company before. Even if you have, the buyer’s support team will bring years, and maybe even decades, of experience to the process. Make sure negotiations are fair and your expectations are reasonable by hiring an investment banker.
- The buyer will thoroughly vet all financial projections and statements. A major acquisition can’t be based on trust and promises alone. The buyer will look to verify your claims and validate all projection methodologies.
- Recruit an exceptional legal team. Deal structure can affect ultimate daily value, determining the amount of cash with which you walk away. So work with a competent M&A legal team who can advise you about how various deal structures may affect things.
- Prioritize intellectual property. For most companies, IP is one of their most valuable assets. Ensure you own the rights to all of your intellectual property, and if you don’t address these specifics before putting your business on the market.
- Don’t get stuck at the letter of intent. Many sellers fail to fully negotiate the letter of intent. This important document sets the tone for the entire transaction that is to come. If you fail to negotiate it, you’ll end up negotiating what should have been pinned down earlier at closing. Never consent to a non-binding LOI.
- Understand the important of a clearly drafted acquisition agreement. It’s usually best for sellers to have their counsel draft this agreement, rather than waiting for the buyer to propose an agreement.
- Understand the importance of employee benefits. Your team makes your company what it is. So if they lose benefits or pay, they may jump ship. You need to protect them to protect your company. Negotiate these key terms early.
- Know the important role of negotiation dynamics. Every deal requires significant compromise. Each party will likely make concessions. Knowing who has the leverage at any given point in the deal is key to successfully negotiating the most favorable possible deal terms.
