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When You Decide to Sell Your Business

For most people selling a business is a once in a lifetime experience. In many instances the business represents a significant portion of the individual’s personal wealth. It is therefore extremely important that the process be handled by a team of professionals that have the requisite experience and personal chemistry to successfully accomplish the mission.

The team will include the owner, other company personnel, legal counsel, outside accountants, tax advisors and an experienced investment advisor. The investment advisor will quarterback the process and find the best possible purchaser for the business. The process can at times be stressful, it will be time consuming and it is not without risks. Start to finish generally takes from six to nine months.

Understanding The Business

The sale process begins with the investment advisor gaining a thorough understanding of your business. This may also include taking some time to help prepare the business for sale. His objective is much broader than just understanding the numbers. He will want to know about business strategies, future growth plans and potential, products, customers, vendors, personnel policies, contracts, patents, business processes, software and hardware systems, competitive advantages and weaknesses, barriers to entry, etc.

Marketing Materials

With this knowledge he can prepare the marketing materials that will be provided at the appropriate time to interested qualified buyers. Typically this will include information on the history of the company, form of organization, description of owned real estate, real estate leases, equipment lists, a description of products, product catalogues, patents, product development capabilities, competitors, market share, a description of marketing and promotional activities and materials, warranty information, product liability issues, lawsuits, distribution channels, head counts, an organization chart, supply chain information, financial statements and/or tax returns, comparative interim financial statements and three or five year projections.

Its purpose is to provide a qualified prospective buyer with enough information about the business to make a prudent preliminary decision with respect to making an offer for the business and the price that it is willing to pay. It is important to remember that the buyer is paying for what he believes will be the future growth potential and cash flows of the business and he will value the business based upon his estimates of what they will be.

A brief one or two page non-confidential description of the business will also be prepared which will be the only information that will be provided to prospects until such time as those prospects have been qualified and have executed a Confidentiality Agreement.

Logical Buyers and Target Lists

Defining the logical buyer for the business is a critical task. There are three categories of buyers, strategic, financial and opportunistic. The challenge is to match the characteristics of the business with companies or individuals in each of those categories. The objective is to identify those with whom a combination would create the greatest value and make contact with those entities.

Contacting Target Companies

The next step is to make contact with target companies and individuals. Initial contact will be made with decision makers only. The objective at this point is to spark interest in acquiring the business. Qualified targets will be provided with the detailed marketing materials.

Getting to An Acceptable Bid

It is probable that each interested party will have questions regarding both the information provided and the company. It is important that all of these questions be channeled through the investment advisor both for control purposes and consistency of response. Throughout this period the investment advisor will be encouraging each interested party to submit an offer or letter of intent.

The detailed letter of intent will spell out the specifics of the proposed transaction including price, terms of payment, timing, contingencies including a description of due diligence requirements, representations and warranties of both seller and buyer and provision for payment of an earnest money deposit including related conditions, if any, for refunding the deposit to the buyer should the transaction fail to close.

Due Diligence

When a bid is accepted the buyer will assemble his due diligence team and will expect to receive full access to all company information. The team may include both operations and financial personnel of the buyer, his outside accountants and legal counsel and other outside professionals. The investment advisor will play a critical role in overseeing this process and assure that all questions are appropriately answered. Typically due diligence lasts two to four weeks.

Negotiating the Purchase Agreement

While due diligence is underway the buyer’s attorney will usually draft the purchase agreement based upon the specific terms of the letter of intent. The draft agreement will then be negotiated between the parties. The investment advisor will work with the company’s attorney in reviewing this document and provide you with feedback on the contract and assist with the negotiations to finalize the contract.

Closing

There will be additional issues to be addressed prior to closing. Most of these will be spelled out in the purchase agreement. For example, consents to the assignment of contracts will have to be obtained, a Phase One environmental review may be required, employment contracts may have to be negotiated, etc. Also a number of lists and schedules will have to be prepared or assembled for inclusion in the final purchase documents. The financial advisor, working closely with the attorney, accountants and tax advisor will oversee the completion of these requirements.

Finally, he will attend the closing to assist in addressing any last minute issues that may arise.

With so much at stake can you afford not to have the right professional team on your side?

Diedrich began his career at Price Waterhouse where he was admitted to the partnership in 1974. After leaving Price Waterhouse, he has pursued careers in international venture capital, leveraged buyouts and the reorganization and restructuring of underperforming businesses. He has acted both as a principal and an intermediary in the purchase, sale and financing of middle market manufacturing, distribution and service businesses. Industry examples include, temporary personnel, digital printing, plastic processing, steel fabrication, automotive paint and supplies jobbers, automotive crash parts jobbers and vending products distribution. He is a skilled negotiator with the ability to bring parties with divergent agendas together in crafting solutions to complex issues.

He holds a Florida Real Estate brokers license.