Prepare Your Company for Sale

Anyone who tried to sell a home during the Great Recession had to work harder than usual to make a good deal. It was a buyer’s market, flooded with inventory, and old tactics just didn’t sell houses. I think the lessons we learned in a recession-era housing market are valuable now in mergers and acquisitions. Here’s why.

Realtors quickly understood that simply setting an asking price and listing a property was not nearly enough to sell the home, let alone to make the best deal possible. Too many homeowners had to sell at substantially reduced prices. So Realtors developed strategies for preparing and pricing homes for the best possible outcomes.

Companies seeking to be acquired can use real-estate strategies to prepare for the market and structure the best deal possible. The first thing to understand, however, is that transforming your company into an attractive target takes time. Once you’ve decided to market your company, you have both internal and external work to do. Below are some strategies to consider when preparing and pricing your company:

Step 1 – Build a solid foundation.

The foundation of a business is its key employees, customers, critical vendors and its service providers. The stronger those relationships are, the more valuable your company will be. Use your preparation time to evaluate and build a high-functioning management team, and ensure its members are retained through the sale. Be honest about your plans and get their buy in for post-transaction involvement. This is also the time to build your service-provider base. These providers will be key when it comes to negotiating, structuring and completing a transaction. Key service providers include experienced accountants, attorneys and specialized consultants. Finally, make maintaining and enhancing the relationships you’ve built a continuing priority.

Step 2 – Spruce up the property.

Every business has issues, and you can be sure your company’s issues will be uncovered by a potential buyer during due diligence. Last minute surprises breed uncertainty and weaken your negotiating position. To avoid problems during negotiations, identify and clean up your issues now. For example, you might settle outstanding legal issues, vendor or customer disputes, or employee problems before you market the company.  Evaluate your legal and tax structure to maximize your after tax return – the simpler the better. You also can take care of some basic reporting requirements now. Prepare audited financial statements to help expedite the acquisition process. You might even consider performing sell-side due diligence now.  In addition to the matters mentioned above, typical areas of buyer concern that are addressed in sell-side due diligence include information systems, internal control, insurance, regulatory compliance, and federal, state and local taxes.

Step 3 – Generate great curb appeal.

You want to present your company at its best to a potential buyer, and demonstrating strong employee and customer relationships are important elements. Remember that uncertainty is not your friend, and nothing impacts a deal and selling price as much as uncertainty. You’ve already taken steps to clean up your outstanding issues, helping you reduce uncertainty, but there are several additional areas to consider.

First, understand how acquisitions in your industry are typically valued. Are they based on EBITDA? If so, what measures can you implement during this period to increase your EBITDA? Implementing these measures may also increase your purchase price, as price is often based on multiples of key metrics. Second, be sure you’ve documented your business plan and have pulled together realistic financial forecasts that highlight your growth and continued success. My advice is – don’t oversell. Prospective buyers will quickly identify embellishments, and overselling can damage a buyer’s trust. Finally, review the public face of both your company and key employees on your website and social media. You want to ensure that you are presenting the company in its best light, and a long-term, effective presence on the Internet can be very helpful.

Step 4 – Price it and put it on the market.

Now that you’ve done the preliminary work, it’s time to price the business and put it on the market. Use your service providers to help you value the company. Then develop a fair price based on these valuations. Establishing a fair price will ultimately help to establish trust and can assist you in negotiations. Once you’ve priced the company, communicate its availability to your existing business network. Be in the public space – social media and physical presence are very important in bringing positive attention to your company. During this phase, however, don’t get too consumed with selling. By that I mean stay focused on running the business and continuing the things that made your company successful – that’s what buyers want, success. Nothing kills a deal quicker than last minute reviews that show a significant drop in results.

Selling a company isn’t easy in any market, but thinking like a real-estate marketer can help you prepare for the sale and create smooth negotiations. 

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Topics: Merger & Acquisition

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