20 Feb Around the Web: A Week in Summary
A recent article from Business.com entitled “How to Tell a Good Acquisition From a Dud” discusses three levels to base an evaluation of a company on before considering an acquisition.
Hint: The way to tell a good acquisition from a dud lies in more than just the purchase price. When considering a company for acquisition, ask yourself these three questions:
- How is the deal structured?
- How much time will it take?
- What should the new company culture look like?
At the end of the day, the sale price is very important, but it doesn’t encapsulate the value that the company holds, its current culture and the risk factors you’d be taking on as a new owner.
A recent blog post from VR Business Brokers entitled “The Stakeholders in Successful Deals” breaks down who is involved in the business sale process and what each individual’s role is in the deal.
It takes a team to close a deal. In every business transaction there are stakeholders on both sides. As the seller, it’s important to have a full team working behind you to ensure that your business doesn’t suffer from the process and that your interests are protected. Below is a list of the individuals that make up each side of a business transaction:
- The Seller’s Deal Making Team: You (the seller), your business broker, your business attorney, your tax advisor, your bookkeeper, your business consultants, your family.
- The Referees: The landlord, the franchisor
- The Opposing Team: The business buyer, their attorney
A recent article from Divestopedia entitled “The Initial Price May Not Be Real” explains the role that due diligence plays in reducing the asking price of a business.
Whenever a buyer enters into an agreement with a seller, they are responsible for a process called Due Diligence. During this process, they inspect the business in question thoroughly requesting follow-up documentation and proof of the metrics presented at the initial interest stage. As a seller, it is important to be aware of the following aspects of this process:
- Due Diligence Becomes a Reactive Process for the Seller
- Due Diligence Increases Transaction Risk and Impacts Valuation
- Headline Price Adjustments via Valuation Metrics
- Headline Price Adjustments via Multiple
- Adjustments to the Transaction Terms
The due diligence process can prove to be a struggle for the seller and detrimental to the sale, especially if they are not properly prepared. It is important to understand the due diligence process and how it affects the sale price in order to position yourself and your business for the best possible outcome.