Friday, July 29, 2016

Second Quarter M&A Update

We are in an extremely favorable market for business sellers. Buyers have abundant capital to deploy, interest rates are low, and the economy in Texas is doing well – even with the pull back in oil prices. However, the best advice to a business owner that is thinking of an exit, is to “take control and start planning today”. Engaging experienced advisors who understand the business sale process will prove invaluable to the business owner who wants a successful outcome.

Two key issues to consider before beginning the process are outlined below:

Deal killers
As a business owner, your opportunity for the greatest influence on maximizing sale proceeds occurs before you go to market. Once you start the process of marketing your business to qualified buyers, the ability to correct the “deal killers”, is extremely limited due to the time factor. These must be solved before going to market. The most common “deal killers” are listed here:*

1.     The belief that you can sell your business today for enough money to satisfy your financial independence needs and wants. ( without knowing what your business is really worth and how much income you will need from the sale)

2.     The failure to reconcile your need for value with the market value of your business before going to market. (see #1)

3.     An exclusive focus on top line sales price.  ( i.e., have you done any tax planning, and analysis of net proceeds  from a transaction, including retained assets, and net working capital conveyed?)

4.     The failure to preserve a company’s most valuable asset. ( do you have “stay bonus plans” or other agreements in place for key employees?)

5.     The belief that you can negotiate alone. ( i.e., responding to an inquiry from an unsolicited buyer, and starting the process on your own. The sale process is a taxing and emotionally draining process for an owner, many times resulting in deal fatigue and a realization after closing that significant dollars were left on the table. A strong deal team and competitive process is the only method to realize the true market value.)

6.     An unwillingness to recruit the best possible players for your Deal Team. ( buyers will have experienced accounting, legal, deal, and tax advisors on their team. You need the same on your team.)

7.     The belief that owner-initiated pre-sale due diligence isn’t worth the time, effort or cost. (Conduct Seller due-diligence before going to market. This gives your deal team time to address and fix the issues that a buyer may uncover when it conducts its due diligence. Reducing the time between letter of intent and closing is key to a smooth transaction. )

8.     Seller remorse (The owner needs to be comfortable that they will not feel empty and insignificant after the sale, and need to be emotionally ready to turn over the company to a new owner. A recapitalization transaction may solve this issue. )
           

*As presented in Exit Planning: The Definitive Guide, by  John H. Brown, CEO of Business Enterprise Institute

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