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Preparing a Company for Deal Success

7/7/20 – Ely Friedman

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In our earlier article, "How Due Diligence Dictates the Deal", we shared how preparedness and organization sets the tone and pace for the diligence process. While that article focuses a bit more on how the deal unfolds as a result of preparing for diligence, the article below addresses “must-have” and “nice-to-have” items in preparation for a successful transaction.

Must-Haves

Assemble your A-Team of M&A advisors

  1. Selling a company is often a once-in-a-lifetime event for most of our clients, and we don’t take that lightly. As such, the liquidity event that transpires from a deal can yield major retirement dollars which need to be planned out accordingly. A qualified and capable wealth management advisor is key to the success of the overall sale. Too often, wealth management advisors are not included early enough in the process to be fully utilized. A good wealth management team will regularly strategize with an M&A-focused tax accountant to help structure the most tax advantageous plan for the transaction proceeds. You need to have a high caliber wealth management team working with an experienced M&A tax professional to avoid leaving money on the table.
  2. Risk may not be as obvious as a big purchase price but it is a real factor that shouldn’t be taken lightly. Having an experienced M&A attorney with many deals under their belt will provide real-time knowledge on what is fair and ordinary for deals of your size and situation. As such, the deal will be “fair” in terms of who bears the various elements of risk.
  3. Negotiating the sale of a business is very different to wheeling and dealing contracts, large equipment purchases, and major real estate. Similar to the benefits of including a good M&A attorney, your Investment Banker / M&A Advisor will be able to fight on your behalf to get the best price and terms available in the current market conditions. They recognize the pitfalls that buyers use to sway a sellers attention. In addition to negotiating the sale of the actual business, the Investment Banker / M&A Advisor will also negotiate major considerations such as post-close employment terms, all while preserving the relationship between the buyer and the seller. Buyers and sellers regularly voice their frustrations with one another to the investment banker. These comments would otherwise tarnish the relationship.

Organized information

  1. First impressions matter, and your ability to be organized with your information demonstrates to a buyer if they are investing in a mess or a well-run clean business.
  2. Financials are an obvious area of interest to any buyer, and it’s of the utmost importance to have your financials in two forms 1) original format as they were consolidated, reviewed, or audited and 2) adjusted – these are produced by your investment banker who has worked closely with management and your accounting team to account for various one-time expenses or more creative adjustments that instantly add exponential value.
  3. Key business indicators (KBIs) are more than the latest craze or another acronym to become accustomed to. Demonstrating consistent and superior performance to competitors in your industry indicates clear rationale as to why your business is worth more than others.

Nice-to-Haves

  • Time and patience are nice to have because it allows our clients to be more methodical in their approach to a potential sale. This additional time also helps set the stage as to why a potential buyer is the best fit for the transaction. This investment thesis saves a considerable amount of time by excluding known “tire-kickers” and “bottom-feeders” who are a waste of resources by not committing to an offer, or worse, providing a value that is offensive.
  • More recently, we are experiencing the completion of more and more deals in a one-off or selected process with a limited number of buyers. In this instance, a complete and thorough confidential investment memorandum (CIM) may be a bit more than what is required. That said, a CIM is a very “nice-to-have” piece as it demonstrates the ease in which a seller can quickly shift to another potential buyer. This competitive tension helps drive the valuations to higher levels.
  • Sell-side diligence is the ultimate “nice-to-have” as it may include a Quality of Earnings (QofE) which verifies the adjustments (mentioned earlier) the investment banker produces. Additionally, it saves considerable time in diligence as much of the information can be leveraged for the buyer’s review.

If selling your business is something you are actively considering or you are routinely getting called to sell, preparing your company for deal success is critical. You never know when the right opportunity may come across your desk. Others may choose to take a more proactive approach in preparing for deal success by establishing the above “must-have” and “nice-to-have” items to maximize deal success.

For any questions related to this article, or M&A guidance in general, contact VonLehman’s Director of M&A Services, Keith Carlson, at kcarlson@vlcpa.com or 800.887.0437.