By Alan Smith
Phase II: Marketing and Buyer Considerations
Marketing the company is undertaken with the use of two pieces of vital information. The first is a so-called blind business profile, which provides an overview of the company but does not identify it. Included is information about the company's size, the industry and markets it serves, a financial snapshot, and an assessment of its potential. This is the document the M&A specialist provides to prospects, which are gleaned through personal contacts and from proprietary databases and research. It is conveyed to those buyers who initially fit the type of buyer most suitable for the company.
The second piece of information is called the confidential business review (CBR). This document is given only to potential acquirers that have been further qualified as being able to buy and are interested in buying. It isn't released until the prospect signs a confidentiality agreement. The CBR, which usually ranges from 30 to 45 pages, provides the complete story on the company. Ultimately, it serves as the basis from which potential acquirers submit letters of intent (LOI) to buy the company. It also becomes the foundation for the acquirer's due diligence, or thorough research prior to the final signing.
An obvious concern is how to properly price a company in the marketplace. Owners can always specify an asking price, but rest assured that if they do, the price will only go down from there. Our solution at Bay Pacific Group is always to go to market without a defined price, allowing buyers to set terms and positioning the company for offers that exceed its expectations.
Consider the case of a Canadian company that, internally, expected to be sold for $6 million. It received an $8 million offer, which was eventually raised to $11 million, because the buyer believed its manufacturing process would significantly reduce the time required by its own.
Phase III: Due Diligence, Structuring, Negotiating, and Closing
Once the LOI is received, negotiated, and agreed upon, the buyer begins due diligence, a comprehensive examination of the company's operations, finances, and legal obligations. No stone is left unturned. At this point, a CBR that has described the company intelligently is worth its weight in gold, because it boosts credibility and eases the due-diligence process.
Anticipating and preparing for due diligence is a major task for the M&A specialist, who should coordinate with the company's professional advisers to ensure that the seller is properly represented. Information is usually required from the company's attorneys, CPA, CFO, and financial planner, as well as the professional who determined its valuation and possible even its environmental consultant.
Another very important related point is that the seller must be advised about ways to structure the sale to maximize aftertax proceeds. The right advice and implementation from the financial planners and tax professionals can make a tremendous difference. Early in the process, this area should be carefully considered.
When due diligence is satisfactorily completed, a definitive purchase agreement is drafted, specifying all of the considerations in the offer, the mechanics of the offer, and the allocation of risk.
The process is then largely finished, a process that brings to an entrepreneur the fulfillment of perhaps a lifetime of work. It isn't a matter to be taken lightly -- or without the benefit of being informed and prepared. Literacy in this milieu is twofold. It involves knowing what you don't know and must ask another to do for you. And it demands that you know enough to work knowledgeably with your representative. When the time comes to sell your company, be sure to make literacy your ally.
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