64 ■ ■ ■ Business Sense
By Patrick F. McNally
Editor’s Note: This is Part II of a three-part
series on getting maximum value when selling
your business. In the February issue, Part I
addressed preparing for a sale. Part III,
which will appear in the April issue, will
explain how to maintain family harmony
when selling the family business.
Selling a business is an art and
a science; it requires the
same amount of skill, knowledge, and effort it took you
to start and grow your business. Some
business owners undertake the sale of
their company on their own, learning
along the way. But this can be an
expensive lesson—and one most business owners will likely never use again.
Furthermore, your business should
continue to be run profitably and grow
throughout the sale process to maximize the value you will receive.
Selling a business is an arduous and
time-consuming process that can distract you from running your business.
An experienced financial adviser
can guide you through the entire
process, from marketing your company and screening potential buyers to
negotiating the sales terms and
attending to follow-up details. An
adviser also can do most of the heavy
lifting of the sale process, allowing you
to focus on maintaining—and growing—the value of your business.
The following are steps you should
expect to take throughout the selling
process.
Selling your business
Part II: 11 steps to finalizing the deal
1. Develop a sound
understanding of value.
dates if your business is of interest to a
limited number of buyers or because
you would like to conclude a sale
quickly.
Other companies might benefit
from a larger marketing campaign
because, for example, they have a
large pool of potential buyers or it’s
difficult to figure out who might be
interested. Your adviser can help
develop a marketing strategy to maximize your company’s value while minimizing any disruption of your current
operations.
An objective valuation is crucial in
determining a realistic price for your
company.
Your company’s selling price will
depend on the state of your industry,
the economy, and how well your company is doing. It also will depend on
the buyer. Understanding what drives
value for various buyers will allow you
to negotiate more successfully.
3. Compile a list of
prospective buyers.
Your list of prospective buyers might
include direct competitors, companies
looking to vertically integrate, strategic buyers interested in a horizontal
acquisition, or financial buyers looking for a platform or add-on acquisition. Your adviser will make sure your
prospective buyers have the ability to
complete the transaction.
factual and generate excitement.
Items you will need include a brief
letter introducing your company, a
teaser sheet, and an information
memorandum or book describing your
business in greater detail. The brief
letter and teaser sheet offer basic information about your business and the
buying opportunity to generate interest among potential buyers. They typically are distributed by an intermediary without identifying the selling
company.
The book includes information
such as summary financial statements
and a description of your products,
markets, operations, and opportunities. Its purpose is to provide prospective buyers with enough information
to decide if they want to learn more.
6. Screen interested
buyers.
5 Approach prospective
buyers.
2. Devise a marketing
strategy.
How will you market your company?
Whom will you approach and how? In
some cases, it’s appropriate to target a
small number of very interested candi-
4. Create marketing
materials.
Your marketing strategy and buyer list
will dictate the marketing materials
needed. Marketing materials must be
How you approach prospective buyers
and the way contact is managed can
set the tone for negotiations and affect
the price you receive dramatically. If
you have a short list of industry buyers,
your adviser may make direct, informal initial contact. But with a long list
of buyers, a more comprehensive program is necessary.
Once a prospective buyer responds, he
should be screened to gauge his interest level and ability to complete the
transaction. Your adviser then will disclose your company’s identity and
share your book with him after he
signs a confidentiality agreement.
At this point your adviser will help
answer prospective buyers’ questions
about your company and aid in the
preliminary due diligence process. A
serious prospect then may be asked to
submit a preliminary nonbinding
expression of interest.
This brief document typically
includes a price and a brief outline of
the proposed structure (for example, a
stock sale versus an asset sale, method
of payment), as well as any conditions
to closing, such as satisfactory completion of due diligence. Even though it
may be legally nonbinding, this document tends to eliminate less serious
buyers.
The selling process focuses on narrowing the field while continuing to
build excitement on the part of the
buyers. Be prepared for a lot of back-and-forth; how and when you present
information will affect the selling
The FABRICATOR | An FMA Publication
www.thefabricator.com | March 2007
