Value is destroyed and deals lost as a result of disorganised paperwork, absent contracts, outstanding litigation and inexperienced advisors.
As preparation is so crucial, I’ve listed below 5 key steps to consider; 1. Experienced advisors Experienced and savvy advisors can deliver your dream exit but by contrast, inexperienced dabblers can drive a good deal to the wall. M&A advice is more than just experience of procedure or knowledge of accounts, it’s about deal making and experience. It’s about understanding the component parts and people of each deal and what’s required to drive complicated and emotional negotiations to a successful completion. But here’s the problem, many advisors dabble in the M&A process creating genuine risk of fractured deals and heavy costs. Just because your trusted advisor has dealt with your business for years, doesn’t mean they have the experience, contacts or nous to shepherd you towards a successful exit. At best they might destroy value, at worst lose the entire deal. Conduct a beauty parade of experienced advisors, work out who knows their onions and importantly who you can work with and when instructed, arrange an early meeting to discuss the next 4 topics in this list. 2. Up-front due diligence Due diligence (DD) has a scary reputation. After months knitting together a deal, agreeing heads of terms and smelling the finishing line, DD is when the buyer (or their advisors) get under the bonnet of your business. It’s crunch time for the deal and the emergence of any problems (or perceived problems) can lead to a last minute price chip or worse … One way to avoid the DD process turning into a nightmare is to conduct it in advance of finding a buyer. Up front DD enables you to flush out obvious problems and arranging for your advisors to deal with them in advance of a deal hanging on it. It’s a signal to the buyer of how efficiently you manage your business if you can hand over a pre-arranged due diligence pack that enables a smooth DD path to completion. They’ll also appreciate the saved cost! Get good quality advisors on board early. Understand what a buyer will look for and flush out the potential problems before you go to market. 3. Absent shareholders or third parties Another overlooked issue that can emerge late in a deal, is to encounter problems arranging consent for a sale from minority shareholders or third parties. Get all shareholders on board early with the decision to sell and make sure you have up to date contact details and availability. Similarly and depending on how your deal is structured ie share or asset sale, you might need consent from a landlord or supplier. Landlords in particular can be tricky customers because there is little in it for them, indeed they may view new tenants or business as a different risk to that originally agreed. Leaving it late in a deal to contact your landlord can also lead to the risk of them applying a financial consideration to the production of quick consent and remember, speed is of the essence at completion as time kills deals. 4. Tidy up those contracts Many entrepreneurs build their business from scratch and arrive at the gates of a successful exit with those some of those original agreements in place. Indeed, some businesses have survived for years on the basis of gentlemen or long since outdated contracts. These arrangements will create serious concerns for a new owner – particularly if they relate to business critical relationships. Don’t assume those relationships will automatically migrate to a new owner. If there is a risk of attrition during the transition then a buyer will place a lower value on the certainty of that revenue flow or supply chain. Conduct an audit of all important relationships and existing arrangements. Renew, strengthen or introduce accordingly. 5. Clear out the skeletons Are there any existing or brewing threats of litigation?
Any problems with key members of staff?
Any other potential skeletons in your business cupboards?
If so, clear up as much as possible in advance of a buyer walking through the door. Try to settle any pieces of litigation and clear out disputes. If a key member of staff is showing any signs of discontent, shower them with love and incentives to stay and help drive the business forward now and for the new owner. Achieving a successful business sale is rarely an easy ride but good and early preparation will improve your chances of exit enormously and importantly, protect the value. You’ve worked hard over the years to build up that business, give yourself the best chance to maximise your reward. Andrew Weaver is CEO of LawyerFair (the legal comparison service for business owners) and 10 years a corporate deals advisor.
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