Preparing for a Sale of your Business

A merger or acquisition is a huge deal for any business, so you want your mergers and acquisitions (M&A) transaction to be a success from start to finish. Understanding the keys to M&A success helps you see the process through from step one to closing and integration.

1. Ensure that your financials are clean and clear, preferably audited or reviewed and easy for potential buyers to read.

2. Analyze the tax consequences of the sale in advance of going on the market. Can you sell assets or do you need to sell stock?

3. Make sure that you have employment agreements with your key staff members, preferably with a non-compete, which can be transferred to the new owner.

4. Strong, healthy companies will always be in high demand. If there is room for improvement in your firm, now is the time to make changes to enhance your future.

5. Limit your attorney’s participation to the legal aspects of the sale. The attorney’s job is to protect you legally, not run the deal. Attorneys are often more accustomed to win/lose transactions than dealing with the win-win approach needed with a prospective partner; some can set the wrong tone for negotiations.

6. Choose the correct method of valuing the business. Make sure all normal and accepted pro forma adjustments are included in your adjusted earnings. Consult an expert in the field, if needed.

7. Price your business in realistic terms. If an offer sounds too good to be true, it probably needs close examination to avoid the hidden pitfalls.

8. Continue to operate your business until your deal is closed; be careful to keep your eye on your key performance ratios.

Staffing Industry Specific Factors Influencing a Multiple

  • Maintaining earnings growth 96%
  • Legal / insurance issues 73%
  • Size and number of office locations 87%
  • Good record keeping 86%
  • Depth of management 71%
  • Customer concentration 75%
  • Business mix 85%
  • Market position 90%
  • Marketplace 92%
  • Profitability and growth rates 97%

Keys to Successfully Completing an M&A Deal

An M&A deal is the biggest deal of your life, so completing a successful transaction is key. Knowing a few key M&A tips — whether you’re merging or acquiring — increases your odds of successfully completing an M&A deal. Secrets to success include the following:

Retain capable and experienced M&A advisors.

You can’t complete this transaction alone, and a business owner who represents himself in a life-altering deal is asking for trouble. You need a dispassionate advisor, someone who has been through the process before and can guide you to a close. This advice is especially true if you’re selling a business.

Don’t allow yourself to get too high or too low during the process.

M&A is a roller coaster ride, with ups and downs around every turn as a deal you think is wrapped up one day falls apart the next day . . . only to come back together on the third day. You have to be able to keep an even keel.

Check emotion at the door.

Despite the frustrations of M&A, you need to keep your emotions in check. Yelling and screaming don’t get the deal done. Logic, facts, and a cool demeanor do.

Don’t jump at the first offer.

Ideally, you want to have multiple offers before deciding which deal to accept. Having options increases your chances of getting a great deal.

Don’t hold out for a marginally better offer.

If you want to do a deal and the offer is sufficient, take it. Part of something is better than all of nothing, which may be what you get if you wait around for the perfect deal that never comes.

Know when your position is weak or strong.

Overplaying a strong hand can chase off otherwise suitable deals; misplaying a weak hand can scuttle the deal and perhaps your career!

The market is the best way to determine your company’s valuation. In other words, business appraisal services have limited value. Get out in the market and have actual conversations with actual Buyers.

Mergers & Acquisitions in Staffing

A merger or acquisition is a huge deal for any business, so you want your mergers and acquisitions (M&A) transaction to be a success from start to finish. Understanding the keys to M&A success helps you see the process through from step one to closing and integration.

Compile a target list.

You can’t buy or sell a business unless you have a list of suitable Sellers or Buyers.

Contact the targets.

Making a phone call and discussing the target’s interest is important. That discussion allows you to gauge the target’s interest level and whether proceeding makes sense. Knowing how to make a pitch is an art, and believe it or not, being a Buyer is far more difficult than being a Seller!

Send/receive a teaser.

The teaser (sometimes called an executive summary) is the document Seller sends to Buyer to give Buyer just enough information (the product, the customers, the problem the company solves, and some high-level financials) to make Buyer want to learn more. The teaser is usually anonymous; that is, Buyer doesn’t know which specific company is sending the document.

Sign a confidentiality agreement.

Both sides agree to keep the deal discussions and materials confidential.

Send/review the confidential information memorandum (CIM).

The CIM or deal book is the Seller’s bible and provides all the information (including company history, product descriptions, financials, customer info, and more) Buyer needs to determine whether to make an offer.

Submit/solicit an indication of interest (IOI).

Buyer expresses interest in doing a deal by submitting this simple written offer, most often with a valuation range rather than a specific price.

Conduct management meetings.

Buyer and Seller get a chance to meet face to face. In these meetings, Seller provides Buyer with an update of the business and guidance for future performance. Additionally, both sides gauge how compatible they are.

Ask for or submit a letter of intent (LOI).

Based on the material in the CIM and on the updates from the management meetings, Buyer submits this detailed offer with a firm price.

Conduct due diligence.

In the due diligence phase, Buyer examines Seller’s books and records to confirm everything Seller has claimed.

Write the purchase agreement.

Buyer and Seller memorialize the deal in this legally binding contract.

Close the deal.

Closing is rather anticlimactic: Both sides sign lots of papers, Buyer gives Seller the money, and Seller gives Buyer the company.

Handle any post-closing adjustments and integration.

Closing isn’t the end of the deal. Buyer and Seller usually have some post-closing financial adjustments, and Buyer has to integrate the acquired company into the parent company or make sure it can continue to operate as a standalone business.

Steps of the M&A Process

Going through an M&A deal can be an intimidating process (for both the mergers and acquisitions teams), but that process thankfully follows some concrete steps. Here’s the step-by-step process that nearly every M&A deal follows:

Product mix: One of the first integration considerations for Buyer is dealing with the product and service offers of the acquired company and the parent company. Some acquirers largely leave the product mix alone, while others will cut (and perhaps sell off) various products due to customer overlap, low quality, low sales volume, or simply because the product doesn’t fit with Buyer’s vision for the combined companies.

Operations: One of the key reasons to make acquisitions is to realize costs savings in operations. An acquisition can mean Buyer is able to negotiate better terms with vendors and banks, condense operations into fewer locations, and institute improved accounting and inventory standards at the acquired company.

Personnel: After a deal closes, Buyer has difficult decisions to make about the personnel at the acquired company, including whether to retain the management team or insert her own team to run the acquired company. Buyers may be able to realize savings by eliminating duplicate positions.

Personnel decisions are sensitive issues, so handle them with compassion.

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