Corporate Attorney’s Guide to Increasing Value for a Client’s Business Sale
Do you have a client that is selling, or thinking about selling their business? These business owners are often at a point where their need for guidance is at an all-time high. Certain clients may resist advice from professionals even though they are not equipped to proceed with a sale process on their own.
There are a few things you can do during the sale process that will yield results for your client. I have broken them into two stages, before and after a Letter of Intent (LOI), because I realize that at times clients walk into their lawyer’s office with a deal penciled out on a napkin. Sometimes they are just beginning to think about selling.
If Your Client is Early in the Process of Thinking About Selling You Can Increase Value Using These Tips:
1) Manage the emotions involved in selling a business
Selling a business can be emotionally taxing on a business owner. At times, owners make the decision to sell but then become so anxious about the sale that they lose perspective.
2) Understand their objectives
Most sellers are concerned with the highest value for the business. However, some sellers have other ideas or requests. Things such as keeping a plant open, continuing to own a portion of the business, or keeping a son or daughter employed can change your potential buyer universe and have a direct impact on value.
3) Make sure they understand the universe of buyers
Clients need to understand the difference between financial and strategic buyers and the requirements and risks associated with them.
4) Have necessary materials prepared
It is not enough to simply send a potential buyer financial statements and have them look at the company website. Make sure the financial statements and other information are scrubbed and prepared in order to eliminate one-time or non-recurring events.
5) Hire the right investment banker or broker
The best way to create value when you have a client that is interested in selling is to add an investment banker to the deal team. An investment banker will add buyers to the process and create a competitive process. Competition is the number one way to create value because it forces all buyers to put their best foot forward – both for price and terms of the transaction.
If Your Client Already Has An Offer (or LOI) Consider These Tips:
1) Manage the emotions
Buyers issuing LOIs can be a powerful drug. Sellers often read the purchase price (which may or may not hold up through the transaction) and forget that there are a lot of other important terms that need to be considered. Buyers with an LOI think they have a bird in the hand and they forget that there is a lot that needs to happen before the transaction is closed.
2) Minimize distractions
Selling a business is a difficult task. Diligence alone can take up a huge amount of time. Negotiating can be completely distracting. The number one reason that good deals fall apart is when the business fails to perform through the process. This often happens because a business owner stops running the company and starts negotiating a transaction.
3) Hire the right investment banker or broker
Sometimes, if your client has an LOI and it appears to be a fair deal at a good price, business owners and their attorneys feel that an investment banker is no longer necessary. In fact, you need an investment banker now more than ever.
An investment banker in the same sector as your client will be able to tell you in a very short period of time if the deal you have in the LOI is “market” or not. The investment banker may also be able to give you some insight into the personality of the buyer, including items such as their behavior in other transactions and whether or not they actually have the capital to close the deal.
To many middle market clients the sale of a business is an exciting time. However, sometimes with all that excitement they overlook items that will detract from value or cause the deal to fail. Having the right deal team can be critically important.