Selling the company Featured

12:05pm EDT March 17, 2004
After a long wait, it finally appears we may have achieved an attractive overall climate for selling a business. With the general economy continuing to show signs of a sustained recovery, the debt capital markets exhibiting increased flexibility and the private equity community returning to active investing, it could be a good time to sell.

Nevertheless, selling a business involves much more than simply deciding whether and when to sell. In order to maximize the value of a business and increase the likelihood of a successful sale, a number of important preparatory steps should be taken before a sale process commences.

Here are three ways to prepare your company.

 

Reduce perceived business risk

Owners should address business risks that will impact value during a sale process.

 

* Operational risk. Divesting noncore assets or unprofitable business lines and upgrading or rationalizing operations will reduce process distraction that can only impair potential value. Even the perception of potential problems can significantly limit investor interest in the company and dampen valuations.

 

* Financial risk. Eliminating unnecessary debt and cleaning up or validating financial statements, which may require hiring an audit firm and obtaining third-party assessments, will significantly streamline the due diligence process and exhibit management's effectiveness.

 

* Quality and depth of management team. Senior management personnel will be integrally involved in the sale process and must be prepared for additional responsibilities. Ensuring that the company's management team can balance running the business with handling the added demands of a transaction process is critical.

 

Even when hiring a seasoned M&A adviser, beginning to prepare six to 12 months before the traditional M&A process commences will help to minimize disruption to the business (versus taking a crash course approach either just before or during the sale process) and drive the ultimate deal to close more rapidly and at a higher valuation.

 

Establish goals, set expectations, remain objective

Nothing will hurt a sale process more than setting unrealistic goals regarding the length of the transaction process or setting an unacceptable price for the business. Remaining objective despite the subjective and emotional aspects of selling a company will preserve the integrity of the process and yield the true market value of the business.

Typically, a seller should start shaping expectations three to six months prior to entering a process. Ultimately, the company's adviser should help crystallize these expectations.

 

Hire the right adviser

An adviser should help create the right process to yield the best results. Identify an advisory firm known for its impartiality, transaction expertise, industry relationships, market knowledge and client service.

The right adviser should also provide a client access to its Rolodex of auditors, third-party assessment firms, lawyers and other advisory personnel, if necessary. Hiring an adviser one to three months before hitting the target date will allow him or her to set up the process, understand your business and prepare offering materials.

If considering an exit in the immediate future, and depending upon the company's readiness with respect to the above, a seller should actively seek out professional advice and accelerate its preparation timetable to take full advantage of today's increasingly receptive markets.

Working in the firm's Chicago office, Alex Gregor supports Brown Gibbons Lang & Company's senior staff with financial analysis and valuation, industry research, due diligence and the preparation of client presentation materials. Before joining BGL, Gregor was a valuation analyst for Duff & Phelps LLC. Reach him at (312) 658-1600, ext. 233, or at agregor@bglco.com.