After 30 years doing global business, with the last eight of those focused on international mergers and acquisitions, I’ve found some commonalities to preparing businesses for acquisition that can enhance the potential market value and speed up the transaction.
It may require months to get the business in shape, but owners can do a few things first before consulting acquisition specialists.
Clean up the books — The first and most obvious (and often what takes the most time) is to get your books in order. Small and midsize firms tend to slide personal expenses onto the business side of the ledger and minimize profitability to reduce tax burden. That may be rational in a solo operation, but a history of low earnings hurts your value. Strip out the personal expenses and structure your books to maximize your enterprise’s true profitability.
Prepare solid answers for down years — Everybody has a spot where the line of upward growth dips down. The question isn’t if you will be asked about this year (or two), but when a prospective buyer will grill you on what happened. They may be genuinely curious or want you on the defensive when it’s time to negotiate. In any case, have a thoughtful and logical answer and, with some luck, connect a brief downturn to external events that were beyond your control.
Scrub off lousy customers — We all have customers that frustrate us, but we keep them around for legacy reasons or the trickle of revenue they provide. However, the resources dedicated to maintaining these accounts often exceed their value. If those resources were redeployed to support growth opportunities, it paints a better picture of your business potential to a slate of possible buyers.
Resolve pending litigation — From time to time, business owners face claims and litigation. Sometimes these are based on bona fide disputes, and sometimes the validity of the claims is questionable. Potential buyers view pending litigation with extreme skepticism, particularly international acquirers. The U.S. has a reputation for being highly litigious and also for settlements occasionally veering into stratospheric amounts. Perfectly good transactions can stop dead. Better to grit your teeth, find a settlement and get it off your plate than try to explain why they should buy a company that is in court.
Clean up the plant — First impressions count. Invest time and resources to clean and power wash your factory or production facility. Some paint and new light bulbs can make a dark and gloomy production floor more welcoming. Pay close attention to all bathrooms. When I do company audits overseas for potential buyers, I normally can tell what range of approval I’ll give the factory by ducking into the workers’ bathroom facilities. Companies that keep things clean and sanitary have that reflected in the general workspace.
Even though it’s hard to find time to resolve these issues, handling them can pay off handsomely when preparing to be acquired. They strip away reasons for a buyer to grind down and chisel away at your perceived value.
David Iwinski Jr. is the managing director of Blue Water Growth. A global business consulting firm with extensive experience and expertise in Asia, Blue Water Growth services include merger and acquisition guidance, private capital solutions, product distribution, production outsourcing and a wide variety of business advisory services for its Western and Asian clients.
