“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.