Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
UPSIZE STAGES: EXIT STRATEGIES
07 :: Selecting & negotiating
Advisers can counteract
owner?s emotional
attachment to business
You started your business years ago with a plan for succession in mind. Five years ago you began discussing your exit strategy with a business broker and your financial and legal advisers and one year ago you put the business on the market.
If the efforts have worked well you?ve now received several offers structured in a variety of ways. The best thing to do, again, is to seek the advice of your broker or other advisers.
That adviser realizes you have a childlike attachment to the business and that selling it is an emotional decision. The adviser can be the adult and help you sift through the offers.
These days, businesses don?t have several offers to choose from. If you have received but one, the decision comes down to whether or not it meets the goals you set out ahead of time.
For businesses that are making money and have a promising future, however, it is still a seller?s market. And if you are lucky enough to have multiple offers, the first thing your broker will do when the deals come in is create some sort of spreadsheet to track all the information, as it?s rare that any of the offers will contain exactly the same terms. There are three main criteria that will be used to judge a deal: price, terms and the probability that the buyer will deliver.
Once the offers are in front of your advisers they?ll start conducting some due diligence. They?ll sift through several years of the potential buyers? tax returns to ensure that their offers are valid, research their history of past transactions, and the legal and business representation on their sides of the prospective deals to ensure they are legitimate, and determine the progress they have made on financing. Some buyers will likely fall out of the process through this vetting alone. As some experts say, if you have a bad feeling, there is probably some reason for it.
After performing due diligence, the broker will begin comparing the actual terms of the deal, which will quickly start to narrow the field. For example, if one firm offers to pay cash upfront while another wants to pay in installments over 10 years, you?ll discuss the ramifications. It?s more secure to get the money upfront, but you can defer taxes by taking the installment deal.
There are going to be non-financial factors at play, too. For example, it?s not uncommon for a seller to include among the goals a guarantee of the well-being of the company?s employees. So some sellers will take a lower price for the business if the potential buyer will take customer and employee needs into account. Some of the offers might require you to stay involved and take some portion of the payment over time in an earn-out. Your level of willingness to do that will either make an offer attractive or further weed down the competitors.
While it might sound like a lot to think about, having set your goals upfront and hired a competent advisory team can take a lot of the stress out of the decision process. The best offer might not end up being the one that carries the highest dollar-value in return, but eventually when taking all of these factors into account one of the offers will generally distinguish itself as clearly the best one.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
