San Francisco, CA (PRWEB) August 18, 2014
Mergers and sales of companies are accelerating at a significant pace, and it is not just at the mega-merger level. Small and mid-sized companies are being swallowed up by larger companies flush with cash and ready to take advantage of the growing economy. Prices paid for companies are up 30 percent over just three years ago and with prices so tempting, many family businesses and small companies are considering a business sale.
Be prepared with a strategy to explore and seriously consider the “deal that may be too good to pass up.”
1. Analyze the Option to Exit
Private companies considering an exit should be prepared to analyze the full range of options from all relevant perspectives including financial expectations, time horizons, risk appetite, and tax issues for the Board, investors, managers, and other stakeholders.
A key issue to expect: stakeholders may not have the same time frame for a transaction. Some stockholders might have tax issues if a sale is structured as a taxable transaction.
Steps to improve a company’s business enterprise value preparatory to a sale include:
2. Assess Transaction Readiness
If there is initial interest in pursuing an exit, companies must determine if they are prepared to execute a transaction. Consider having an outside advisor provide a preliminary valuation of the company to manage the owner/investors’ expectations. Be ready to define the current state of the company’s readiness to execute a transaction and address availability of basic collateral to support a sale, such as material for a “book.”
Consider the readiness to respond to the key criteria that will drive buyers’ interest in a transaction and the price they will pay, including: predictability and consistency of the company’s revenue, profit and cash flow, customer base and its loyalty, pricing power, concentration issues, and incentives to keep key employees and executives.
Consider differentiation and market positioning relative to competitors.
3. Consider Buyer’s View of the Company
Successful companies do not face their customers unprepared. All the more so when it comes to facing a buyer. Be ready to address the concerns of prospective buyers of the company. Expect them to ask about the following:
4. Create an Exit Plan
Key steps to an exit are often tax driven. Mergers can be fully or partially tax free and can generate capital gains or ordinary income, depending upon how the transaction is structured. Most sellers will want a stock deal while most buyers will want an asset deal to avoid any contingent or undisclosed liabilities.
CEOs and shareholders have worked long and hard to build a company. Take the time and devote the focus required to exit it successfully.
Michael Evans is the National Managing Director of the Newport Board Group