16 May Around the Web: A Week in Summary
A recent article from The Huffington Post entitled “Thinking About Selling Your Company? Here Are 5 Things You Need and 1 Thing You Don’t (Surprisingly)” explores five important components to consider when you decide to sell your business.
- Hire an Investment Banking Firm – An investment banker or business broker (depending on the size of the company) will most likely provide a valuation analysis as part of the sale mandate and this provides reasoned and supported conclusions for the value of the business. The intermediary will help navigate the sale process and maximize the sale price for you.
- Consider an Accounting Upgrade – You will need to make sure all financials are organized and up-to-date for potential buyers to review, so you may want to upgrade to a more experienced accountant.
- Get an Attorney on Board – Find a deal attorney you can work with who has experience with business deals and can help with properly documenting the terms and conditions for the sale.
- Bring in the Investment Adviser – An investment advisor can help you with what to do after you sell your business, whether you decide to travel, retire, etc.
- Choose a Quarterback – Have someone who can coordinate all of your advisors and make sure everyone is working together and talking during the process.
A recent article posted by Divestopedia entitled “Choosing Between Strategic Buyers or Private Equity” gives the key elements to consider when deciding between selling your business to a strategic buyer or a private equity firm. Strategic buyers and private equity each have their own set of financial and ownership objectives which will affect the initial transactions as well as how the company operates afterwards. Strategic buyers want to enhance their current business model and their financial returns to their shareholders. Financial buyers, such as PE firms, are companies that have experience in a similar industry but not exactly in line with the target business. They see the company as an investment with the potential for internal growth of revenue, earnings and cash flow.
Here are several factors to consider when deciding between the two:
- Don’t Oversell: Proper Valuation Will Reduce Downside Risk
- Deal Structure: Meeting the Company’s Needs
- Time to Close: Sealing the Deal With a Minimum of Friction
- Investment Criteria: Learning How They Operate
- Previous Transactions: Getting at Their Past
- Employees, Culture and Legacy: Maintaining Normalcy
- Control and Governance: Who Takes the Lead?
- Management: Making Promises
- Exit Plan: Where Will the Future Lead the Company?
You first need to decide on the objectives of your company and what will define success for you before making this decision. A financial executive can help you with understanding the complexities of these deals and also to help facilitate and navigate the process.
A recent article from the Smart Business Network entitled “How to determine the best structure for the sale of your business” offers alternative options to a traditional business sale and gives an overview of what to do to prepare for negotiations. A traditional sale may not be in an owner’s best interest if they need to live off the purchase price for the rest of the life, if they still want to be involved in the business, or if any similar stipulations exist.
There are a variety of ways to structure a transaction such as recapitalization, where the owner doesn’t sell the entire business and keeps partial ownership. Another option is that the owner can stay involved in the business and maintain a stake in the company. A management buyout is another possibility, where the management team becomes the new owners and the original owner gets the proceeds.
A business owner should get a team of experienced professionals (attorneys, financial advisers, accountants, etc.) together to assist with the deal. Structuring a deal that meets the wants and needs of the seller and the buyer takes creativity, flexibility, experience and knowledge.