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The Secrets of Success to Selling a Business
In our January 2012 edition, my colleague, Mathieu Gauvin, presented a list of ten key factors to maximize the value of a business ‘‘Keys to Maximizing the Value of Your Business’’. But aside from the price that an entrepreneur hopes to be paid for the sale of his business, what can be done to ensure a successful transaction?
Before initiating the sale process and beginning formal discussions with potential purchasers, it is essential that the entrepreneur set specific and realistic goals. As most entrepreneurs play many roles within their organization, their goals will change depending on which hat they happen to be wearing:
- As Shareholder, the goal is to maximize proceeds of sale;
- As President, the goal may be to ensure the continuity of the business and protect its employees and other stakeholders subsequent to the transaction;
- As Employee, the entrepreneur may be concerned with finding his or her suitable role within the business on a go-forward basis;
- In a family-owned business, the parent-entrepreneur will often be concerned with ensuring fairness among children active in the business and those who are not.
We often see entrepreneurs struggling with the dilemma between their desire to maximize the purchase price while ensuring that the business, which they built with the help of employees, suppliers and the community at large, continues to thrive under its new owners. While it is not impossible to have the best of both worlds, unfortunately this is not always the case. Sometimes the buyer’s objectives are incompatible with those of the seller. A different, often personal, challenge is defining the entrepreneur’s place in the acquired business. Will your job simply be to assure a smooth transition (often at the buyer’s request) or will you be ready to assume a leadership role within the organization while reporting to the new shareholder? Remember, post-acquisition, you’re no longer your own boss!
If the transaction is a merger of two companies, you may be asked to manage the integration of the two companies. On the one hand, this may be an interesting challenge. On the other hand, will you be prepared for the challenge given the stage of your career?
A Road Map to Success
Once you’ve defined your objectives, what factors should be considered during the sale process?
- Have you developed a good marketing strategy for the business: prepare a confidential information document, identify the most likely potential purchasers, determine the best way to solicit interest for the transaction, etc.
- Build a team of trusted advisors (lawyers, tax, accounting and financial) and work with them throughout the sale process.
- Narrow the list of prospects based on your objectives and ensure that they are qualified for the potential transaction (financially sound, the right strategic match, etc.)
- Once you’ve contacted potential purchasers, take the time to understand their objectives. Are their objectives compatible with your own? If not, is there room for compromise?
- Be as transparent as possible throughout the process. This is the best way to create trust between buyer and seller, increasing the chances of a successful close. Be prepared to share relevant information (while of course protecting confidential information) to avoid surprises that may jeopardize the transaction down the road.
- Negotiate respectfully, but firmly. You’re in control and you have the upper hand. If the deal isn’t to your liking, you can always walk away (unless the company is in a distressed situation, which is of course another story!).
- Stay focused on your objectives and manage the negotiations accordingly.
- Don’t forget the golden rule in negotiation – no party should lose face. Be prepared to make concessions. However it is up to you to decide which are acceptable and will still allow you to realize your objectives.
- Be patient! The sale process can easily take between three and six months (and sometimes much longer). Of course, you still need to be focused on the transaction and work hard (with your advisors) to get things done as efficiently as possible. However, events beyond your control may arise that will slow down the process.
To summarize, it is important to understand all aspects of a potential transaction. The financial component is only part of it and may not represent the biggest challenge. The seller’s expectations must be realistic in light of the potential purchaser’s objectives and limitations. This is where managing the psychological element of a transaction comes into play and highlights the importance of being surrounded by a group of trusted advisors who can guide you through the inevitable pitfalls to arrive at the finish line.