Selling Your Business in a Merger & Acquisition Transaction - Part 3

By Jack Lyons, Mergers & Acquisitions Advisor and Certified Exit Planning Advisor (CEPA)

In a mergers & acquisitions transaction your ability to target a specific type of purchaser is a function of the size of your business, its growth prospects and the value you offer to the various types of M&A buyers. Once you understand the most likely buyers for your company, you can make decisions about how to approach the market.

If your family members and your management team are buyers, they are best approached directly, often with the help of your CPA and attorney.

If you wish to sell your company through an ESOP (Employee Stock Ownership Plan), you will need help from an ESOP expert. First, check with your CPA and attorney to determine if an ESOP should be considered, because the ability to fund an ESOP is very important. If your CPA and attorney respond positively to this alternative, good places to start are the National Center for Employee Ownership (www.nceo.org) and the ESOP Association (www.esopassociation.org). Both organizations will be able to help you with your investigation in different ways.

Entrepreneurial merger & acquisition buyers are best reached via local business brokers, local media ads and Internet sites catering to individual buyers. Be aware that if you choose to use local media or Internet advertising, you will probably be swamped with unqualified prospects, so be prepared for that if you choose to go either of these routes.

Professional investors such as private equity groups and venture capitalists, and industry or strategic merger and acquisition buyers can be found in two ways. The first way is if they approach you directly about a mergers & acquisitions transaction — some have their own teams looking for deals. The second way is to approach them about a merger & acquisition either directly or through an intermediary. No matter which way is chosen, these kinds of buyers typically look at a large number of potential acquisition opportunities before deciding on one to try to acquire.

Going public can only be accomplished by employing an investment banker. The investment banker you choose will depend on your company type, the size of your company and the amount of money you are seeking to raise in a public offering. The cost to go public is very high and the cost associated with public reporting is significantly higher than is required by a private company. It is also a risky proposition to try to go public. This has been unfortunately learned by the many companies that started down this route, only to find out that the timing was wrong and they’d spent hundreds of thousands or millions of dollars before being unsuccessful.

The quality of historical financial information may be the single factor with the highest impact on the mergers & acquisitions business sale process. Having solid, professionally prepared financial information, as in reviewed or audited financial statements, results in easier communications, more trust with M&A buyers and quicker financing. Poorly prepared or unreliable financial information creates wary, often disinterested M&A buyers. When you are selling your company in a mergers & acquisitions transaction, you are selling your credibility, and it’s hard to be credible if your financial statements aren’t. merger & acquisition buyers compensate for inadequate or unreliable financial statements by withdrawing, examining details more closely, making a low offer or revising their initial offer downward because the perceived risk is higher than originally anticipated. With unreliable financial statements, third-party financing becomes more difficult and more expensive and is sometimes unattainable. Unreliable financial statements make any mergers & acquisitions transaction harder to close or put the seller significantly at risk to receive the full purchase price from the M&A buyer post-closing.

Before beginning the mergers and acquisitions sale process, it is best to decide if you wish to sell your business yourself or if you desire to have outside help. We all know the old saying about how only a fool… Unfortunately, many business owners forget this when it comes to the biggest financial transaction they are likely to make in their lifetime and decide to take the do-it-yourself approach to mergers & acquisitions. This often leads to a less-than-optimum mergers & acquisitions transaction outcome for any number of reasons. As Tiger Woods once said, “No matter how tough you think you are, you can’t do this alone.” The same holds true when you go to sell your company. At the very least, get the help of competent legal counsel before you take the first step, and unless a buyer has approached you with an offer you can’t possibly say no to, find a competent mergers and acquisitions advisor to help find the best M&A buyers in the market. No matter which avenue you choose, have a confidentiality Merger and Acquisitionagreement in place with the prospective M&A buyer before revealing any confidential company information, and have an acceptable offer from the buyer before releasing due diligence materials. To minimize your risk, be sure to check with your attorney or merger & acquisition consultant about the difference between confidential company information and due diligence materials.

At a minimum, any potential M&A buyer for your business will initially want to document the names of the owners and their  percentages of ownership in the business; the type of entity that is being sold (if it is a C-Corp, S-Corp or LLC); when the company began business; information regarding whether the facility is owned or occupied; company revenue and profit history as well as historical financial statements; organizational information that includes products sold and markets served; number of clients and customer revenue concentration; growth plans; business strengths; owner transition strategy; why the opportunity is attractive to a M&A buyer; and the merger & acquisition transaction desired. Presenting this information in an easy-to-understand, clear and compelling manner will make it easier for an M&A buyer to become interested in your company. Don’t exaggerate; it will only blow up in your face. A professionally prepared information package can create the best impression possible right from the beginning.

After that, keeping an M&A buyer interested in your company will require selling yourself, your company, your company’s future, your organization, etc. It will also include the ability to provide due diligence materials in a timely manner.

Jack Lyons is a Mergers & Acquisitions Advisor, a Certified Exit Planning Advisor (CEPA) and president of Lyons Solutions, LLC. He can be reached at 203-642-4141 or at jlyons@lyonssolutions.com.

 

Copyright 2010 Jack Lyons. All Rights Reserved.