The majority of business owners sell a business only once in their lifetime. The same can be said for someone buying a business...they typically only do it once. But, a strategic, corporate or equity buyer, is likely to have been involved in quite a few transactions - some that worked and some that did not. What does this mean for the seller? It means buyers that express interest in buying a business could have an experienced team of mergers&acquisitions; advisors helping them or, have been through the business transaction process more than once. This can result in a lopsided negotiating arrangement - the amateur (the seller) versus the professional (the buyer). Should a seller find themselves in this situation, the topics addressed below can go a long way in evening the playing field. Selling a business is not like selling real estate. Confidentiality is, in all cases, critical. A seller does not want employees, suppliers, and customers/clients to be aware of a possible sale. Go to great lengths to protect the confidentiality of your information. When potential buyers inquire about a business, the seller should error on the side of sharing too little information rather than too much. The sales process also cannot distract the owner(s) from managing the day-to-day operation of the business. Sellers should plan ahead how they will manage their time with the added responsibility of selling their company. Delegate tasks if necessary. It is safe to assume selling a business could easily consume 20% of a seller's typical work week. Some deals come unraveled late-stage because a buyer "thinks" they have adequate financing only to have that not be case when they try and obtain the proper funds. Sellers should ask early-on for proof of financing and make sure they are comfortable with the buyer's arrangements. All acquirers should be able to show the seller they have the financial resources to make the deal. Unless the company is a large and successful company where acquisition funds are not an issue, the buyers financial statements should be made available. A credit report is also important. Buyers that are financially capable of making the deal should not have difficulty supplying this information. Although due diligence is typically initiated by the buyer, it's important that sellers do their own due diligence. Is the buyer a good fit? Do they have experience in your industry? What are their goals in purchasing your company? It is extremely important the buyer be screened as much as the seller. Since a potential buyer will likely employ qualified advisors to assist them with their due diligence, it is important that the seller do the same. Sellers should hire professional help (such as a mergers&acquisition advisor or business intermediary) to insure their business's best interested is protected & considered adequately. Sellers should also retain legal and accounting professionals. A seller should also check for information about any prior purchases the buyer might have been a part of. This would include any previous financing contacts. Talking to a previous seller can reveal how their deal went; how the acquirer was to work with; whether they did everything they said they would; etc. Talking to managers of previous acquisitions by the buyer can tell a seller how employees were treated, etc. Chemistry between a buyer and a seller is important. Do you communicate well? Is information comfortable shared? Are questions openly asked and answered by both parties? If the seller is staying with the company for an extended period of time, it's also critical that he/she is comfortable not only with the buyer, but also with the new management team if it's not the people who are doing the deal. There have been cases where a successful business sale or acquisition occurred that did not involve a business intermediary or a mergers and acquisitions advisor. I hope this could always be the case. It is very important to carefully consider the skill and knowledge a professional can bring to the table. Without utilizing their services, less-than-ideal circumstances can take place. Sellers may receive less than fair value for their company, be involved in a difficult selling experience, or may not receive all of the monies due them. Professional advisors such as mergers & acquisitions advisors, business intermediaries, lawyers (only those with deal experience) and accountants can bring much value to the whole process. http://www.fortunebta.com ...read more
By AMERICAN FORTUNE Business Sale & Acquisitions September 19, 2012
Nearly every business owner has heard that timing is important when selling a business. It is well documented that the timing of external factors - like changes in the economy, availability of funding, and the rise and fall of interest and tax rates - can have a profound effect on the value and salability of a business.Private business owners will be among the ranks of retiring Baby Boomers. In the 1960s and 70s, many Baby Boomers started their own businesses. As a result of the aging business owner population, roughly 40% of the family-owned businesses in the United States are expected to experience a leadership change in the next five yearsMany studies point to the fact that many of these owners hope to sell their businesses on the open market in hopes of funding their retirement and enjoying the benefits of a lifetime of hard work.Baby Boomer business owners may find that selling their company at the right time could be a means to obtain the funds they need to maintain a comfortable lifestyle during their retirement years. Their need to liquefy assets could be underscored by the fact that Baby Boomers are considered a generation of poor savers. Research magazine reports that the majority of Baby Boomers will not have sufficient funds to retire when they hit the traditional retirement age of 65.With their retirement resources often riding on a business sale, Baby Boomer business owners are encouraged to explore the factors that may signal the best time to sell their company. An uncertain economy, low interest rates, and favorable capital gains tax rates have prompted many business owners to cash out. Considerations when Deciding to Sell The decision to sell can be a difficult and emotional turning point for the business owner, and the motivation for selling is often complicated and subjective. Reasons include retirement, health issues, desire for liquidity, partnership disputes, diminished interest, lack of operating growth capital, and lack of suitable heirs, among others.Regardless of the reason, the decision to sell a business involves extensive planning and preparation in order to negotiate and execute a sale on the most advantageous terms. An owner with a sound strategy for selling his or her business is often better able to realize an attractive value for the company than someone who enters the process unprepared.The sale process typically includes financial appraisal and assessment of value, marketing the business, locating a prospective buyer, structuring the transaction, managing the buyer due diligence, negotiating and closing the transaction and post-close transaction. Despite the importance of having in place a clear-cut plan when deciding to sell, according to a recent survey of small business owners by M&A; Today, 65% do not know what their company is worth and 85% have no exit strategy. Worse yet, many business owners fix a price in their mind and may directly or indirectly communicate that price to potential buyers and competitors. Common Mistakes Made by Sellers The typical business owner sells one business in his or her lifetime. On the contrary, corporate buyers often acquire multiple businesses each year, and financial buyers can be even more active. Invariably, inexperienced sellers can make mistakes that buyers can capitalize on. Some of the most common mistakes include the following:Not knowing the value of the business- Private Business owners minimize profits to reduce taxes. Thus, their company's financial statements often do not reflect the true profits and value of the business. As a result, many companies sold by their owners may be sold below market value.Using a multiple or ratio to set price- There is no single multiple or ratio that applies to all privately held businesses and much depends on the industry type. Each business is unique and requires a comprehensive review and analysis of the company, as well as a strong understanding of the dynamics of the M&A marketplace, in order to determine potential market value.Selling at the wrong time- Many sellers wait too long to sell, not understanding that one should sell when the market is ready. Conversely many business owners spend a lifetime building their businesses, only to sell hastily, failing to recoup the actual worth of the company.Trying to rush the sale- Once an owner has decided to sell, she or he understandably wants the process to be over quickly. But preparation and selling a business - including finding the best buyer - takes an average of 12 months, though each transaction is unique and timeframes can vary widely.Negotiating with only one buyer- Although business owners may feel more in control when dealing with a single suitor, generating interest from multiple buyers can significantly increase the probability of selling the business at or close to the asking price. Not understanding the buyer's motives - Rather than emphasizing the business' growth potential, sellers often dwell on the past performance. Buyers, however, are looking for future revenue projections, return on investment, growth potential, and synergy. Inadequate documentation - Buyers expect documentation in the form of 3-5 years financials as well as documented procedures, policies and systems, including recast financial statements and five-year pro formas, backed by solid research and analysis that shows the potential of the business for new owners. Assessing and negotiating offers - Companies rarely sell for all cash at the closing with balance being in a form of seller financing, earnouts or stock in the acquiring company. Instead, terms are often structured and can have complex tax and legal implications. Sellers should be able to assess and negotiate the terms of the transaction from every angle: personal, legal, and financial. Almost $5 trillion in liquidity is expected to be created by 2015 as aging Baby Boomers transition out of their closely held businesses to retirement. The three most common exit strategies are sale of the company, recapitalization, or ESOP. The potential rewards of a successful business sale are great, but this complex and often time-consuming process should be expertly managed. Sell a Business, Business Brokers, How to Sell a Business, Business Broker, Mergers and Acquisitions, Merger&Acquisitions, Business Valuations, Valuation, Exit Planning ...read more
By AMERICAN FORTUNE Business Sale & Acquisitions January 03, 2012
As we look ahead to what 2011 holds, one of the dominant themes will be an increase in merger and acquisition activity. Already, the year is off to a great start: Deal volume has already topped $83 billion so far this year thanks to deals like Duke Energy (NYSE: DUK) snapping up Progress Energy (NYSE: PGN) for $13.7 billion and other deals. That's the best start in more than a decade according to Dealogic. The trend looks set to continue since this is an extension of the shareholder wealth return thesis I've been talking about for months as extreme demand for corporate bonds sizable cash reserves sets the stage for Mergers and Acquisitions, dividend hikes, and stock buybacks. For investors, the way to play this is to try to get ahead of the curve and invest in companies that are likely buyout targets. The short-term returns from a Merger and Acquisition almost always accrue to the shareholders of the target company; whereas long-term returns, if they develop, are harnessed by shareholders of the acquirer. Since Merger and Acquisition activity is enabled by cash reserves, Morgan Stanley (NYSE: MS) equity strategist Adam Parker took a look at which sectors of the market appear to be equipped for an increase in buyout activity. Combined, healthcare and technology account for nearly 50% of overall corporate cash balances. Industrial stocks come in third with a 16% share. Consumer staples and energy stocks bring up the rear with cash balance shares of 6% and 7% respectively. All should perform well in 2011 as the great Mergers and Acquisition boom continues. ...read more
By AMERICAN FORTUNE Business Sale & Acquisitions January 24, 2011
Making the decision to sell one's stocks can be very confusing if one is a novice. There are a number of factors that should be considered when selling stocks, such as what price one should sell the stocks for and when is a good time to put them on the market. ...read more