M&A and Transaction Solutions
Maximizing Company Value Ahead of the Sale
August 26, 2021
As the saying goes, you get one chance to make a great first impression. When selling a business, that first impression impacts the price, how many and what kind of potential buyers compete for it, how long the sales process takes and even whether a sale takes place at all.
Doing everything you can up front to demonstrate your company’s value, rather than allowing potential buyers to drive the conversation, will enable you to negotiate from a position of strength. Preparing your business and preparing your deal team appropriately will pay dividends when the deal successfully closes.
Preparing Your Business: The Right Team
An effective pre-sale preparation team will comprise two groups of people. The first group consists of the company’s own C-suite, general counsel and talent management. This team should conduct a business risk evaluation and identify the most material risks to the company’s ongoing performance and success—risks that could take the business off course. These are the critical areas to actively manage especially well during the sales process.
The second group consists of external third-party experts that will help you look at your business through the eyes of potential buyers. Their role is to help you uncover any problems before they negatively impact the sale process (will a change of control cancel any sales contracts?)), to make sure your sales story is supported by your data (do our loss reports truly indicate a safe work environment?) and to help you value your company appropriately (how will carving out certain assets affect our potential value?).
This team should consist of legal experts, investment bankers and accountants. Additionally, risk managers—often forgotten in this process—can play a critical role in helping you identify, mitigate or transfer risks before you become involved in a sale. Examples of areas a risk manager might look at include the following:
- Cyber – How safe is your network? How is your client data protected?
- Employee benefits – Are you compliant with applicable laws?
- Property coverage – Do you have gaps?
- Safety – Have known issues been addressed?
- Environmental risks – Are there concerns that merit more study before a potential sale?
- Supply chain strength – Does the business rely on too small a pool of suppliers or clients?
- Business continuity – Has your plan been reviewed and tested recently?
The goal is to uncover and address any issues that could hurt your valuation or trigger questions that slow down the sales process.
Sometimes companies decide to avoid the expense and effort of working with an external pre-sale team because they know buyers will do their own due diligence. However, this is an opportunity for you as the seller to set the tone for the entire transaction. A thoughtful, comprehensive and transparent (warts and all) presentation will instill confidence in buyers that they are targeting a well-run company that is valued appropriately. Even if potential buyers discover something unexpected during the due diligence process—and something almost always does pop up—after seeing your preparation process they are more likely to feel that it was truly something innocently overlooked rather than intentionally hidden.
Once the pre-sale team has conducted its assessments, prepared its reports and identified and addressed any risks that could upset a sale, it’s time to prepare your internal deal team to tell your company’s story accurately, efficiently and consistently when addressing prospective buyers.
Preparing Your People: A Consistent, Effective Presentation
As with any important business presentation, it’s critical to practice the delivery. Conduct dress rehearsals to prepare. Consider not only the information you plan to share, but also the questions potential buyers might ask. Make sure everyone on the team is aligned in how to respond. The goal is to tell your story while avoiding any awkward conversations during the sales process.
Also consider what your employees might say if someone asks questions during a facility tour. Keep in mind that buyers may not directly ask the questions for which they want answers. They may ask questions that allow them to infer answers. For example, rather than asking your shop manager if safety is important or whether the company culture is positive, a buyer may ask employees how long they have been with the company. Is the answer likely to be in line with what has been presented? If there are discrepancies or gaps, how will your team address them?
In the end, the goal of the third-party pre-sale team is to create an economic advantage for the seller. If you would like to explore this topic more, contact Hylant.
The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.