In my last post, I focused on getting your house in order as a first big step in preparing your business for a possible sale. Here are four more things you can do to maximize the value of your business.
- Understand Your Rights and Obligations – If you have one, now’s the time to dust off your shareholder agreement. Most shareholder agreements will set out important rights and obligations that apply during a sale process, and will be particularly important if some shareholders do not support the transaction. These agreements can be dense and complex, so if it doesn’t make sense or if it puts you to sleep, then engage your own lawyer (separate from the company’s lawyer) to review and explain your rights and obligations.
- Think Before You Jump – Lots of sellers are eager to “get on with it”, and will appear on the lawyer’s doorstep with the signed letter of intent already in hand. Resist the temptation to solidify preliminary agreements with potential buyers – including letters of intent, confidentiality agreements and non-competes – until you’ve consulted with your financial adviser and your M&A counsel. These documents might sound routine, but they can come back to bite. Take a look at Ian Palm’s blog post for more detail on this. Similarly, you should consider various other matters, such as efficient tax planning, estate considerations and internal restructurings, before you get too far down the road with would-be suitors. Early, smart planning can decrease risk and put extra money in your pocket. The incremental cost of engaging good advisors almost always pays for itself in more effective negotiations.
- Consider Pre-Sale Acquisitions or Divestitures – Have you ever considered that your business could be worth more, or could be easier to sell, if it was sold as two (or more) separate businesses? Similarly, would the acquisition of another business – such as a competitor or key supplier – be accretive to the overall value of your business and increase your sale prospects? Consider these pre-sale transactions as part of your overall sale strategy.
- Keep Quiet – As you tip-toe down the road to selling your business, it’s best to keep your cards close to your vest. Although you’ll want input from your closest advisors, unwanted leaks, rumors and gossip can hurt your sale prospects, spook your customers and build anxiety among your employees. You should control carefully the tone, content and timing of your messages in the most advantageous manner.
Let me know if you’ve learned other lessons when buying or selling a business.