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Go for the Gold

Always Have a Backup Plan

Plan B

Why settle for just one buyer when you could have two? For Freedman, having a Plan B is a vital step in the sale process. "The stronger the Plan B you can put together, the stronger your Plan A will become," he says. Having a strong and visible alternative makes any acquirer sit up and take notice. "There needs to be tension to the deal. Each side wants the other to think that they're about to walk away-it's the tension that gets the deal closed."

The best buyers, according to Freedman, are large, high-flying public companies with broad, strategic agendas and cash to spare. He should know: Two of the companies he built are now happily part of IBM and McAfee.

Selling to a public company has other tangible benefits. Since many transactions leave the seller with a fistful of stock-or worse, a long-term payout-a publicly traded acquirer makes an eventual cash payout more assured.

Team Conditioning

No matter who is buying your business, they'll want to buy more than your personal network and capabilities. In the words of Minor, "Make your business look like it's worth the asking price." This is especially true if you're planning to leave the business after the sale.

"Build a strong management team that can carry on when you're gone," says Minor. A strong team, clear policies and procedures, and a broad customer base are the underpinnings of value. The business should not just run without you, but be positioned to grow without you.

Of course, employees-especially key management-can also become a liability during a sale. "Make sure that key [employees] are incentivized to stay on," says Agrawal. "It's critical to minimize disruption."

Keeping employees around during a transition period takes more than just financial incentives. Communication is also key. Carefully timed communication, that is. Since sale transactions are notoriously volatile and demand confidentiality on both sides, Minor says employees should never be told of a sale until the deal is closed. He unapologetically prepares sellers for the moment when a key employee will ask, point-blank, "Is the company for sale?" The best response, he says, is a misleading fib. "It's vital to keep the transaction confidential, even if it means apologizing to your employees after the fact." Since most sellers are ethically and legally bound by nondisclosure agreements in advance, obfuscating the truth is nearly unavoidable.

There will, of course, come a time when everyone learns of the transaction. Prepare in advance for that critical period. Says Agrawal, "You'll need a communication plan-a script-to talk to customers, suppliers, employees and partners."

The Starting Lineup
Getting a deal closed takes the talents of several people. Here's a list of the characters you're likely to meet on your way to the closing.
On the Buyer's Side:
CEO: The chief executive needs a vision for how the new company fits into the existing organization. He or she wants to add revenue, products or strategic capabilities, and also wants to brag about the purchase to board members.
CFO: This is the detail person and a professional skeptic. Taking a long-term view, the CFO knows he or she will take the heat if reality doesn't live up to expectations.
CPA: The buyer's CPA or accounting firm will validate the seller's numbers. The CPA will probably argue for a lower purchase price based on historical profits.
On the Seller's Side:
Investment banker: The investment banker is a professional quarterback, keeping both teams moving toward the goal. He or she keeps one eye on the sale price and the other on the strategic best interests of the business owner.
Transaction attorney: The attorney is the referee-there to make sure no one gets hurt. The transaction attorney's focus is the sale contract, but he or she can also handle communication with the buyer.
CPA: The seller's CPA should be advising the seller on the personal tax consequences of the deal and how to handle the after-tax proceeds.

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This article was originally published in the October 2004 print edition of Entrepreneur with the headline: Go for the Gold.

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