Sun Mergers & Acquisitions - Exit Strategies for Business Owners

Crucial Pre-Sale Business Analysis

Selling a business is a complex process that should never be undertaken without a clear understanding of the business opportunity along with the goals and objectives of the owner. Business owners and even some M&A professionals may make the mistake of jumping into the business sale process prior to completing proper due diligence and analysis as to what can "realistically" be achieved in a transaction.

Selling a business is a monumental decision in a business owner's professional and personal life. Similarly, the decision to represent a business owner requires a careful analysis on the part of an M&A advisor ( especially those that primarily work on a contingency fee structure ) since a typical assignment can occupy a significant investment of time by both the seller and advisor over an extended period. It is essential to conduct a thorough and objective analysis prior to beginning the process to determine what can be expected in the following areas:

Anticipated Valuation Range
Transaction Terms
Approximate Tax Implications
Key Transactional Challenges that may arise

Anticipated Valuation Range

There are countless formulas and methodologies for valuing companies; however, the value is ultimately determined by the amount anracquirer is willing to pay for it. A qualified professional intermediary is able to apply both formulations and experience to help a business owner identify an anticipated valuation range with a high degree of certainty. The decision to move forward and pursue the sale of the business should be made using this valuation as an assumption, as opposed to basing the decision upon the hope of "finding a needle in a haystack" ( i.e. a buyer willing to substantially overpay. ) Proceeding without an adequate valuation assessment can lead to wasted efforts, compromised confidentiality and a loss of business focus.

Transaction Terms

A favorite expression in our firm is "You can name the price if we can name the terms." Price and terms tend to have an inverse relationship. For example, an all cash transaction will generally yield a lower price when compared to a transaction that includes seller financing. Any meaningful discussion about price must include an analysis of potential terms. To be properly prepared to enter into the process of selling process an owner needs to be cognizant of the various available options for transaction structuring.

Tax Implications

Although most owners hope to receive the highest possible purchase price, the after tax yield is a more relevant benchmark for a business sale. The question that should play a more consequential role is, "what will I be left with after paying taxes and fees." The manner in which a transaction is structured ( i.e. stock sale vs. asset sale, excluding assets, consulting, etc. ) can have a major impact on the tax implications. For this reason, an informed decision based upon an understanding of valuation and transaction terms must also consider the anticipated after tax yield.

Identify the Challenges and Risk Factors

If issues exist that may potentially jeopardize a transaction, a seller is ill served by hiding his or her head in the sand. Eventually these issues will surface and it is far better to be prepared and pro-actively address them, rather than have to take a defensive posture when they are independently discovered. Such "deal killers" may include a lease that needs to be negotiated, property to be cleaned up, equipment to be replaced, financials to be revised, pending litigation, key employee retention, customer retention or concentration, etc. There are a variety of ways to disclose, present and/or remedy these issues. Addressing these issues in a timely and forthright manner avoids spending months identifying qualified acquirers only to have the deal "crash and burn" when these undisclosed issues rear their ugly heads. Problem issues can generally be dealt with when disclosed early in the acquisition process with proper presentation.

One of the biggest and most common mistakes

- Made by sellers and advisors alike - is to skip a step in the logical business sale process. Without doing the proper initial homework it is impossible to establish the proper footing, with appropriate and realistic expectations for all parties. Conducting a critical analysis prior to deciding whether or not to move forward increases the probability that the project will achieve the desired result. Without being armed with the key preliminary information, a business owner cannot confidently make an "informed" decision as to whether it even makes sense to begin the process of selling the Company. Completing this analysis will also enable the seller and intermediary to confirm that they are on the "same page" with expectations, while affording time and a basis for the parties to gain an added comfort level with one another prior to heading into the assignment.

For more information about how you can benefit from the services of Sun Mergers & Acquisitions, please call us toll free (800) 232-0180 or fill out his short form.

Sun Mergers & Acquisitions
411 Route 17 South ~ Suite 300 ~ Hasbrouck Heights, NJ 07604
Phone: (201) 727-1300

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