“I am grieving. It’s a process – Dr. Ben Sobel (Billy Crystal) dialogue from the movie Analyze That
My previous blogs have addressed a few factors impacting your decision to sell your business. They have covered points such as assembling the deal team, dealing with due diligence and avoiding seller’s remorse. However, I am now in the middle of a handful of transactions and I realize the overall process itself is not well understood by owners. What is the right sequence of events and how do I get started? So, I thought I would provide a brief overview:
We are going to begin by assuming you have definitely decided to sell but you are unsure about how the process works. While not in perfect order, here is a sequenced overview of key steps:
- Start with a self-assessment of your business. What are the strengths and weaknesses and how desirable is this business in the hands (and minds) of others? For example, if you are Picasso selling your painting business, a new owner may have some transition issues whereas this may not be a factor if you are selling a widget manufacturer.
- Understand what is your business worth? Speak to a couple of investment bankers in your industry and see if their view of the world reconciles with yours and results in a value which you find acceptable.
- Assemble your deal team. You should find an Investment Banker (IB) who understands your industry or is familiar with transactions of your size. You have to be comfortable with the personal chemistry – you will be spending a great deal of time together. A good transaction lawyer and CPA are also important team members.
- Determine how you will make the decision on a transaction. Have a good understanding of your acceptable price and terms; is an earn – out acceptable? If there is more than one owner, how will the decision process work?
- Work with your IB and team to prepare an Offering Memorandum (OM). It should clearly convey the positive aspects of your Company in a truthful manner.
- What do you want to look like after the deal? If you want the best price and are less concerned about keeping the “legacy alive” you may want to consider a strategic buyer; a financial buyer is a better choice if you want the team and your business to continue and grow. This feedback will give the IB some direction.
- The IB then goes to work to identify buyers and obtain a solid letter(s) of intent (LOI). A good LOI, which is basically non-binding, lays out all the key terms, provides for confidentiality and exclusivity and then allows the buyer to perform due diligence. Hopefully, there is more than one interested party.
- The deal team works to finalize the Purchase Agreement as the buyer completes any due diligence. Make sure you understand the economics, tax consequences and timing of the closing.
Hopefully, in advance of starting this process, you have spoken to an estate planner, tax advisor and investment advisor to make sure your proceeds will be realized in the most tax efficient manner possible. With some basic knowledge, you can manage a successful transaction process. And yes; it is a process. Good luck!