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.
You are close to or over the magic 60-year-old mark (60 is the new 50, right?). You’ve had thoughts that at some point (sooner than later) you should take chips off the table and dial back.
Like many company owners you sometimes get letters from potential suitors. Most of them don’t seem legitimate, but one day you are approached by a big player in your industry saying they are eager to acquire your company and will pay top dollar. You’re intrigued. You take a meeting. You share some financials. They come back with a bid letter with a very attractive “offer.” You feel very smart and very shrewd, because you’ve quickly done all the work that you would have paid an investment banker to do for you.
In our dozens of years of mergers and acquisitions experience, we’ve seen this type of scenario a lot. Instead of a successful closing, here is what is more likely to happen: The suitor has thrown out a very attractive valuation number. They will ask you for more and more information. They will probably ask for, and get, some kind of exclusivity period from you. You will get tied up providing information and engaging with the suitor. You will get “invested” in this process.
The valuation can only go down from the very tempting initial bid. The more the potential buyer investigates your company, the more dings to the valuation. If a letter of intent is drafted, it is likely to have terms and conditions heavily favorable to the buyer.
While you may have competent legal help to fend off some of these terms, the process is chewing up time. Costing money. And pushing back on these unfavorable terms only causes the valuation to go down further. But the price is still so good, you don’t want to let it go. You are teased along, thinking that you are getting closer and closer to a deal. But it’s a quixotic journey.
This becomes a vicious cycle, which more often than not does not lead to a successful closing. Rather, it leads to frustration and the investment of time and resources that could have been deployed much more fruitfully elsewhere.
There is a much better way to manage the exit from a company. And given that a company represents a lifetime of work and most of your wealth, the sale of your company is a process worth doing right.
You deserve to maximize the value you get when you sell your company. Here are some key points to help you do that:
Plan ahead. The exit from a company should be planned several years ahead. Make sure the company is in top condition to support a sale process. Consider engaging an exit-planning professional, or at least a trusted circle of professional advisers.
Have options. When it’s time to sell a company, a company owner should develop a wide range of options. Negotiating with only one buyer gives them leverage and ultimately wastes more of your time.
Our firm always starts with hundreds of potential buyers) looking for potential synergies and companies with adjacent products or distribution channels.
But even company owners who choose to manage the process themselves should hundreds of potential buyers), looking for potential synergies and adjacencies.
(Note: competitors are often the worst category of potential buyers because they don’t bring any new products, channels or customers to the deal. Plus there are risks of exposing your trade secrets to them).
Create urgency and competition. Once you decide to go down the path of selling your company, manage it to a tight timeline. Having multiple buyer options in the mix makes this possible. Multiple options also leads to a competitive valuation process that bids one buyer against another. (How are most unique and valuable things sold? Right, an auction!) Let the market drive the valuation for your company, not your CPA.
Manage the terms. Take the lead in spelling out specific terms that work for you, such as all-cash payment, a lucrative consulting agreement or a special lease on the building you own. The terms can be just as important as the price. By leading, the owner can avoid some of the “term creep” that can make the deal much less desirable or kill it outright.
Don’t scrimp on professional help. This is likely to be a “first time, last time” transaction and the largest transaction of your lifetime. Get legal, accounting and M&A service from the best and most appropriate to your situation, providers that you can trust.
Experienced advisers can more than make up for their fees, not just in purchase price but also by bringing buyers to the process that will actually do what they say they will do and by paying attention to the details beyond purchase price (escrows, indemnities, working capital adjustments, consulting agreements, earn-outs, etc.) that few sellers understand well enough to successfully negotiate.
Remember, if you do get that “over-the-transom” offer that seems too good to be true, it probably is. Take a deep breath, and use this event as a catalyst to develop a real plan and process.
