The easiest thing you can do to increase the value of your company is to get organized.
Selling your company is usually the largest financial transaction you will be involved in. You have bought and sold houses, and maybe commercial buildings or expensive equipment, but when it’s time to sell your company you are making a decision that will impact the rest of your life. Before making that decision, there are several steps you can take to make sure you are prepared to sell. Careful consideration of the advanced preparation will help to maximize the sale price and increase the likelihood of the sale being completed.
The easiest thing you can do to increase the value of your company is to get organized. Getting organized prior to marketing the company for sale makes it easier for your team to tell a good story about the company to prospective buyers and creates a great first impression. Buyers love good stories, but smart buyers will be wary of much of what you tell them. Rather than taking the situation at face value, they will conduct detailed due diligence, to essentially prove-out everything you just told them. Thus, your team needs to have everything ready for buyers to examine. Examples of items to have ready are:
1. organizational documents,
2. organizational chart,
3. team bios and responsibilities,
4. customer contracts,
5. product descriptions,
6. details about your intellectual property,
7. financial records for the last three years, and
8. financial projections for the next three years.
Having all of this information prepared and organized allows prospective buyers to analyze the requested information and quickly make a decision about the acquisition. Furthermore, being prepared to share information creates an impression of truthfulness and transparency that may decrease the perceived risk with the transaction and thus increase value.
Put Your Team in Place
You will need to decide who will be on your internal and external deal teams before starting the sale process. At a minimum, your internal team must include your senior financial person, but should really include your entire senior staff. Experienced buyers will want to meet them, and you will need them to help tell the company’s story in a positive manner. The news of the sale will be a short-term distraction for your team, but you can keep them focused by offering bonuses to be paid at the closing of the transaction. Although your senior financial person is the most important person on the team during the sale process, that position is also the most likely to get eliminated if you sell to a strategic buyer. Secure the support of that team member by offering a bonus as well as a generous severance if the position is eliminated by the buyer.
Your external team is equally important and should include the following experienced external advisors:
An investment banker has been involved with many M&A transactions and will be able to help prepare the company for sale, while subsequently assisting with marketing, negotiation, and managing the process through close. They add a tremendous amount of value throughout the process, but especially by getting multiple prospective buyers interested in the company and thus creating a competitive market. The increased sale price they drive will more than offset their fees. Also, they can help you pick your other advisors.
One of those other advisors should be a seasoned transaction attorney. It is very tempting to use your general counsel for this work, but you need to get someone with extensive M&A experience. The hourly billing rates for experienced deal attorneys will give you sticker shock, but because of their experience they will bill you for fewer hours and save you a lot of money while negotiating the details of the purchase agreement. Attorneys with little or no M&A experience will often unwittingly cause the sale to fall apart.
Tax Attorney or CPA
The third professional you need is a good tax advisor, which can be a tax attorney or CPA. They will help to minimize the taxes you pay when selling your company.
Finally, an optional but highly suggested person on the team is a wealth management advisor. This person is going to help you manage the proceeds of the sale. They should not be involved at the beginning of the sale process, but as things get underway you should start consulting a wealth manager to help you plan for the future.
About Waypoint Private Capital
Waypoint Private Capital is an investment banking firm that educates and advises middle-market, privately held companies through critical stages of their business' life cycle. Waypoint helps business owners and entrepreneurs sell companies, buy companies, raise equity and debt capital for growth and recapitalization, and plan for a successful exit from the business.
To learn more visit waypointprivatecapital.com or call us at 608.515.3354 or 918.633.2647 and speak with a Waypoint Private Capital expert.
Steve Sprindis is co-founder and managing director of Waypoint Private Capital. © 2012 Waypoint Private Capital, Inc. All Rights Reserved.