65
price. If your company has skeletons in
its closet, your adviser can help you
with how and when to disclose them to
minimize the impact on the sale price.
7. Select final prospective
buyers.
Once you’ve narrowed the offers to a
handful, your adviser will set up meetings with the buyers’ management,
arrange a tour of your facilities, and
answer more detailed questions.
Due diligence isn’t just for the
buyer. You have to decide to whom
you want to sell, and consider personal factors: Do you want to retire, or
work five more years and only partially liquidate your investment? Is the
structure of the offer acceptable? Do
you have concerns about how your
employees will be treated after you
sell? Will the buyer meet your personal and financial objectives?
8. Negotiate the letter
of intent.
After narrowing the list of buyers, your
adviser will invite the final prospects to
submit letters of intent. Your adviser
should outline specific issues that each
prospective buyer’s offer should address;
this ensures that all offers will have the
same general structure for ease of comparison and will help buyers understand what’s important to you.
Your adviser will review the offers
with you and then begin the final
price and contract negotiations. If the
process has been well-managed, you
likely will have more than one offer in
the ballpark. This ideal situation gives
you flexibility in selecting a buyer and
helps ensure you’re receiving the best
possible price.
A lot of work is involved in finalizing the letter of intent—phone calls,
meetings, follow-up letters spelling
out the agreed-on points, and line-by-line reviews of the letter of intent to
resolve the details. Once everyone is
in agreement, both parties sign.
9. The buyer conducts
a review.
Once the terms of the sale have been
negotiated, much work still must be
done. The buyer will conduct a thorough review of your company to be
sure everything is as it was represented
during the sales process and that there
are no unpleasant surprises. Due diligence can be time-consuming and
nerve-wracking, and during this time
you need to be on your guard.
Many buyers view due diligence as
their opportunity to negotiate a lower
price rather than a time to confirm
assumptions and the accuracy of information they have received from you. If
you have prepared marketing materials
properly, been forthright, and screened
the buyers carefully, this process should
go smoothly. If there is a high level of
interest in your company and your
adviser has run the sale process well,
you might have multiple offers in the
same ballpark, helping to keep buyers
honest during due diligence.
10. It’s time for the
closing.
The closing can be both exciting and
anticlimactic. During closing, the
papers are signed and you receive payment. There might be a lot of emotion
when it comes time to sign; however,
you also might spend time on the sidelines as the professionals finalize the
deal.
Typically, a flurry of activity takes
place on both sides as closing
approaches. The final sales agreement
and all of the related documents must
be negotiated and drafted. Clear communication among you, your adviser,
and your attorney is essential. Many
decisions will be made on short
notice, so it’s important to have selected dependable professionals whom
you trust.
11. Attend to postclosing
details.
After the closing comes postclosing
cleanup of documents. Also, closings
usually are based on estimated
amounts, so the actual amounts now
need to be finalized. Funds in escrow,
for example, won’t be released for a
stated period. Earnouts, employment
contracts, or noncompete agreements
may carry beyond the closing. It’s
important that you and your professionals keep your eye on the ball until
all these matters are finalized.
Often sellers get money taken out
of their pocket after the closing. It’s
important to have an adviser who
doesn’t disappear after the closing, but
will work to protect your interests as
postclosing issues such as escrows and
estimated amounts used for the closing
are reconciled. Don’t count on your
CPA to do this; he probably isn’t experienced in these matters, doesn’t know
the deal or the buyer as well as your
adviser, and doesn’t understand the
give and take that went into the deal.
If you assemble the right team and
follow these guidelines, your sense of
satisfaction will be immeasurable once
your business is successfully sold. ■
Patrick F. McNally, M.B.A., CPA, ABV,
is partner in charge of corporate finance consulting at Blackman Kallick, 10 S. Riverside
Plaza, 9th Floor, Chicago, IL 60606, 312-
980-2934, pmcnally@blackmankallick.com,
www.blackmankallick.com.
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