WORKSHOP: Mergers & Acquisitions

Nailing the Sale

By Andrew Tellijohn

Photographs by Tom Dunn

You don’t get many chances to sell your business. It might, in fact, be a one-shot deal.

So, experts say, make sure you make the most of the opportunity by having a good management team that allows the business to function even if you’re on a long vacation. Regularly upgrade your technological systems so you’re getting the most productivity for your investment. Make sure you bring on a team of advisers that can help find multiple potential buyers and determine what your company is worth. And, when you are about to sell, don’t forget to consider the ongoing value of your digital assets.

This advice and more came from a panel of experts during a session on mergers and acquisitions, co-hosted by Upsize and Rick Brimacomb’s Club Entrepreneur.

Know the basics, but also assemble your team

Among the basics, says Lisa Holter, a shareholder at the law firm Fredrikson & Byron, is knowing the different possible frameworks of a potential deal. There are stock deals, where entire companies are sold, including shares, units and membership interests. In asset deals, on the other hand, the selling entity still exists after the deal is over, but individual assets will move to the buying company.

“A stock deal is subject to one level of tax,” she says. “An asset deal, if you are a corporation, is subject to two levels of tax. There are different mechanisms to accomplish the two types of transactions. They have different tax implications.”

Panelists told attendees that while they may be incredibly intelligent, adept at business and sitting on a financial gold mine of a company, they should enlist the aid of several professionals who have a background in business deals.

“Key takeaways from my perspective are, for both buyers and sellers, to set up their team of experts early on in the process,” says Melissa Johnston, a senior vice president at Highland Bank. “There are a number of resources out there for buyers and sellers to really put together a solid team.”

Pinching pennies on professional fees when you are at this stage makes no sense, she adds.

“This is the financial Super Bowl of your life and it’s not an area that you want to be skimping on,” she says. “Make sure your team of financial advisers understand their role, they are not overlapping and they are really interested in your success.”

Along with that, she adds, companies should shop around for business bankers with the same experience, even if that means partnering with someone other than their day-to-day banking partner. Talk with peers, talk to experts and find the right fit.

“Just because their depository institution makes business loans doesn’t mean that institution is the right partner for them to do an acquisition,” Johnston says. “It’s important to find a good banker that knows how to structure these types of deals and can be a good sounding board for you as a buyer as you are going through the due diligence process.”

Finding the right potential buyers

Part of the reason it’s important to assemble the team, the experts say, is that they know the nuances it takes to maximize a seller’s value or to get the best deal for a buyer. Holter had a client who had entered into a letter of intent to sell before seeing her. The terms, she says, were not optimal and once the agreement expired, she reworked the plan going forward.

“I set him up to have more leverage in negotiating as he gets into the meat of the deal,” she says.

Peggy DeMuse, business broker with Sunbelt Business Advisors, says her role is to help business owners understand the value of their business and, when they are ready to sell, to maximize the value.

Sunbelt is knowledgeable about what buyers might be searching for their next purchases and they provide a setting where it’s possible to get multiple offers.

“Make sure you are getting a fair price,” she says. “One buyer is really not a buyer and you have no leverage. If you start down that path with a buyer, it’s the perfect time to bring in some professional advice. You need professional advice to make sure you are not leaving money on the table.”

“Unless you’ve got some pressure on that buyer,” she says, “what we see on a regular basis is that buyer will take three months, six months, maybe nine months, do due diligence, kick things around and then say ‘maybe, maybe not,’” she adds.

DeMuse says Sunbelt has found in recent years that there are a lot of buyers out there in their mid-40s to mid-50s who have had significant careers with good companies, who have saved a fair amount of money but suffered a recent layoff or got burned out.

“They decided they want to take this time in their lives to start their own business or own their own business and have something they can take a lot more control of,” she says. “That’s a good buyer for us.”

There also are a lot of younger business owners building portfolios filled with small companies. They get them running, put managers in place and then move on to find the next purchase.

“People are saying ‘hey, I’m not trusting the stock market as much as I used to, I don’t want to have all my apples in that one basket, so I’m going to build my own basket,’” DeMuse says.

Technology matters

When it comes to maximizing business value, technology is important, but it’s equally vital that companies purchase their technology in a way that enhances the value of the company while not draining cash flow, says Dan Moshe, founder of Tech Guru.

For example, he says, there is a sense from the past that if a company was going to get a premium for its business in a sale that its software needed to be intellectual property. Unless the potential seller is a software company, he says, it’s better to buy an existing software program and then make it fit your needs.

“Take software that has been designed for your industry, then customize it to what makes your business unique and special,” he says. “Sometimes it’s tempting to take software off the shelf and meld your business into that software. Then you become kind of vanilla.”

Moshe adds that it’s also helpful when companies can stay toward the top of the “adaption continuum.” By that, he means, companies don’t necessarily need to be the first to purchase a new technology, but make sure once they are tried, tested and proven, they should make sure they purchase what they need to ensure the company functions as efficiently as possible.

Tech Guru, for example, recently moved to a system where its financial reports are done live by dashboard continuously rather than through the traditional desktop business software.

“That way, we can make changes and react to changes in demand or excess capacity or not enough capacity really in real time before it’s too late,” Moshe says.

Potential sellers also must keep in mind the value of their digital assets, says Sam Romain, co-founder of Dominate With SEO. He’s seen companies that were getting hundreds of commercial leads every month lose almost all of them because they didn’t manage their digital assets properly.

“I don’t know what a customer is worth to a bank, but I’m sure it’s a lot of money,” he says. “I think we could have saved them a significant amount of money had they just had a five-minute conversation with us before making this change.”

Final pieces of advice?

When asked for some final advice, Holter reminded sellers should be prepared for the process to take a while. “In my experience it takes three to six months to do a deal,” she says. “If it’s an auction process, you’re going to look at a longer timeframe.”

Owners should plan to spend evenings and weekends putting together documents buyers will want for due diligence purposes. And it will be extra important for the company to hit its financial targets.

“Don’t plan vacations during that time frame,” she says. “There is going to be an opportunity for the buyer to renegotiate the price during negotiations and that due diligence period.”

She and Johnston urged business owners to inform only key employees who can help assemble information – realizing the likelihood that retention bonuses may be necessary to keep them on board.

Be wary of informing the entire team, however, Johnston adds. “If your employees start finding out that you are selling, it could be really bad for everyone involved,” she says. “Those people could get spooked about the sale and leave.”

Moshe expounded on technological investments and encouraged business owners to make sure that when they transition to cloud-based applications, that they make training employees a priority “so everyone is using them consistently with your brand to help deliver great service to customers.”

To DeMuse, the most important thing a business owner can do to increase the value of the business is put together a good management team and disappear for a while.

“Be that owner that can be gone for a month and the company can run on its own,” she says.

And companies should keep an eye on their online reputation. There are some strategies that can help shed a positive light on your business, adds Romain. But “it’s good to plan ahead and try to get ahead of any skeletons you may have in your closet before you try and sell your business,” he adds. “These strategies take a while to fulfill and implement.”

CONTACT THE EXPERTS

PEGGY DEMUSE, business broker, Sunbelt Business Advisors: 651.288.1627; pd*****@************st.com; www.sunbeltmidwest.com.

LISA HOLTER, shareholder with Fredrikson & Byron P.A.: 612.492.7082; lh*****@*****aw.com; www.fredlaw.com.

MELISSA JOHNSTON,senior vice president Highland Bank: 952.858.4798; Me**************@***********ks.com;