Focusing on the past. It is common for business owners to focus on past performance when valuing a firm and presenting its attributes. Conversely, acquirers primarily consider strategic or synergistic acquisition goals and base their decisions on the company’s future earnings potential and its ability to produce the desired return on investment. Business owners seeking to maximize value should explain the past and sell the future, along with any initiatives that are in place but have yet to be reflected in historical earnings, along with potential synergies derived from the acquiring company. It is important to present specific expansion strategies that could be implemented going forward. This will build value and increase the interest level of acquirers.
Mentioning a selling price. Whoever mentions price first oftentimes loses. For sellers, it pays to focus on value – a company’s optimal earnings potential and future return on investment. This focus, in combination with a carefully structured growth plan that properly positions the business in the marketplace, accurate and compelling documentation, access to the right buyers and favorable timing – will serve to determine optimum market value: what a buyer is willing to pay. Always let the buyer present an indication of value. This is a good barometer to determine if they have been properly educated to the intangible values, acted in good faith, and are the type of people you want to form an ongoing relationship with. This also offers the potential to be pleasantly surprised by their offer.
Transaction momentum. One of the biggest transaction killers is the loss of momentum during the sales process. Anticipating the information a buyer will need and issues that may potentially bog down a transaction can avoid major slowdowns in transaction momentum. The Letter of Intent should have a timeline that the buyer must adhere to, such as a deadline to complete due diligence or date that they must present evidence of a financing commitment. Press your professionals to generate and review documents as soon as realistically possible. Transactions drag on if not monitored, which leads to second guessing, over scrutinizing, strained relationships and ultimately may cause the transaction to fail.
While this is not an exhaustive list of the mistakes that can negatively impact a business sale transaction, many common mistakes have been identified. Transactions are challenging enough even when everything is handled the right way. Avoiding the common pitfalls highlighted in this article will go a long way to maximizing the value and probability of a successful transaction.
Article written by Stephen J Goldberg
Sun Mergers & Acquisitions