Rules of the Road to Freedom

“Almost anything can be achieved in small, deliberate steps. But there are times you need the courage to take a great leap; you can’t cross a chasm in two small jumps.”

David Lloyd George

If you decide to sell, here are a few “rules of the road” gained from our many transactions:

  • Manage the company as if you’re going to sell it so you can when the opportunity arises. Always be building something valuable.
  • Follow the guidelines for building sustainable value as shown in the Sustainable Value Wheel (link to last week’s blog). They build options and freedom for owners and their companies.
  • Identify and nurture target buyers and investors early.
  • Identify and connect with a transaction team well before you actually need them.
  • Build a valuation map to drive extraordinary multiples.
  • Be prepared for a dose of reality. Valuations often do not meet owner’s expectations.
  • Get as much cash up front as you can if you sell. Earn outs and seller’s notes are usually not paid in full.
  • If you choose to sell and stay, have a top-flight attorney negotiate your employment agreement.
  • Your buyer may offer to let you reinvest in the newly structured company. Do not reinvest in the deal unless you have a graduated recovery of your investment if you leave involuntarily. Evaluate all the risks with the help of your advisory board.
  • Update your estate plan and have pre-determined investment alternatives for the proceeds.
  • Understand buyers/investors motivations. Where are they taking the company? What changes are they likely to make? How will these changes affect the owners, financially and emotionally?
  • Before and after the deal consummation, build a paper trail from the meetings with the buyers. If it isn’t in writing, it often doesn’t happen. You cannot predict human behavior.
  • Always introduce competition. It modifies behavior. One buyer is no buyer, and it is not an auction.
  • Do not give up control unless the shareholders are completely satisfied with the cash payout and will be willing to walk.
  • Beware of “loan to own” scenarios.
  • Remember, everyone has an agenda—everyone.
  • Loyalty too early comes at a high price.
  • Buyers/investors value predictable earnings. They can hold shareholders hostage to what was represented as future results.
  • Beware of the representations and warranties in your selling, as they will be used against you.
  • Everyone needs to know where the exit is.
  • Be ready to live a life beyond your business.
  • Be patient. This may take years.
  • Remember the people who got you there. Share.