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
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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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