Welcome to the mid-March edition of our newsletter. The articles are in this issue are filled with information about selling a business, but we want to remind our readers that we also work with buyers. If you own or manage a small to medium-sized business, one of the ways to grow your business is through acquisition. You're invited to attend our next webinar in which we'll talk about corporate acquisitions, or to contact us if you want to discuss how that strategy might work for you.
We're here to help owners who are considering selling their company or optimizing it in anticipation of a future merger or acquisition. We welcome your inquiries and referrals.
John Austin and Bob Dale
info@austindalegroup.com
512-327-0427
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Grow Your Company through Acquisition
Join us for a free webinar on April 21
Most business owners want to grow, but they only think about their own organic growth of revenues and profits. But highly successful companies often complement that growth by strategic acquisitions. The combined approach is well-known by large corporations, but may also be suitable for small to mid-sized businesses. In this webinar we'll discuss why growth through acquisition can complement your organic growth and drive up the value of your business, the steps involved in buying another business, and the problems that buyers may encounter and how to overcome them.
Date: Thursday, April 21
Time: 2 - 3 PM Central
Click to register, seating is limited.
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Why Deals Fall Apart
"Skeletons in the Closet"
An undisclosed material fact discovered during the due diligence phase or just before closing can crater a deal quickly. Every business has its own "warts" - items that are less than perfect, pending litigation, warranty problems, environmental issues, etc. The buyer may discover that important pieces of equipment are old and the parts needed to repair them are difficult to find.
The deal could be blown if the seller discovers that the cost of replacement will force a reduction in the purchase price or the buyer is unwilling to invest the funds necessary to replace the equipment.
The best way to handle skeletons in the closet is to reveal them from the very beginning of the deal. Buyers (and sellers) hate surprises. Addressing them from the beginning with a plausible explanation should eliminate this problem. Sellers should realize that the skeletons will come out of the closet somewhere along the line.
Financial Issues Surface
A major deal breaker occurs when sales and/or earnings suddenly drop. If the buyer has been made aware of a drop - for example, decreased sales due to seasonal business - most likely, no problem. But, if there is no apparent reason, the buyer could become spooked and either lower the offering price or drop the deal altogether. It is important that management continue to run the business during the sales process.
The other financial issue that may surface involves the seller getting cold feet. All of a sudden, the seller realizes that the proceeds from the sale are not what he or she expected. After paying off suppliers, bank debt, taxes, etc., the seller realizes that it really doesn't pay to sell and the deal craters. A seller has to sit down with his accountant and intermediary and go through the numbers to determine just what the real proceeds will be.
A Personality Clash
Chemistry between buyer and seller is very important. If it is not established, or is fragile, the skeletons and roadblocks that might come up could destroy the deal. A casual dinner between buyer and seller can go a long way in working out problems along the way.
Lack of Flexibility in Negotiating
If either party becomes inflexible in the negotiations, the deal could crater. An unreasonable demand half-way through the deal could sink it. The seller decides midway that he wants the carry-back notes collateralized. Or the buyer wants the seller to guarantee the equipment. Major issues should be revealed prior to a letter of intent being drafted. If either side has a non-negotiable item, it should be broached initially. Great chemistry won't solve all problems.
Using the services of an experienced and professional intermediary can eliminate, or at least lessen, some of these issues before the parties get too involved in the deal-making process.
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When is the Right Time to Sell?
Selling one's company at the right time is critical. It is difficult for the owner of a privately-held company to, as they say, "align the stars with the moon" to achieve the perfect time to sell. Public companies have their stock price to guide them. Here are some other ideas of what many would consider the right time:
- Sell when the economy is growing.
- Sell when your industry is hot.
- Sell when your company is doing well.
- Sell when the company is fully mature.
- Sell after proper planning and preparation.
- Sell when you find the right buyer.
There are certainly many other reasons. Others haven't even been mentioned such as: health issues, personal problems, the offer that's too good to pass-up, etc.; the list is endless. Most people sell their business because something in their gut tells them it's time. It is probably the same gut reaction that told them to buy the company or start the business in the first place. |
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Tips to Make the Business More Salable
Does the business have equipment that is not needed? Sell it. Is there non-operational equipment? Fix it if it is needed, or fix it and sell it. Most buyers will want all equipment to be in working order. If you don't need it, get rid of it.
If you have your third cousin or an old friend on the payroll and neither is needed, let them go. Give them a small severance to ease the transition.
If you have some old accounts receivable, consider discounting them to get them off of the books. If the company has some disputes with customers, why not settle them? If there are some legal issues hanging around, get rid of them even if it costs a few bucks. None of these issues look good to a potential buyer.
If you have your favorite easy chair and a valuable painting in your office, take them home. Acquirers will expect to get everything they see in the business.
If the business owns the building or a corporate retreat, spin them off to a separate corporation. The lower the price, the easier it is to sell. Many buyers don't want to invest in real property. Become a landlord. If you don't own your building, check with the landlord to see if he or she will lower the rent or rewrite the lease with other more favorable terms.
Check with your accountant to find out how you can make the financials look better, cleaner, more profitable, etc.
One last point -- if you don't have operational and marketing manuals, create them. It will make your operation look a lot more professional.
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