Most individual company owners only sell one business in their lifetime. A corporate buyer, however, may have been involved in quite a few transactions – some that worked and some that did not. What does this mean for the seller? The acquirer may have an experienced team or have been through the business transaction process more than once resulting in a lopsided contest — the amateur (the seller) versus the professional (the acquirer).
Selling a business is not like selling real estate. Confidentiality is, in most cases, critical. A seller does not want employees, suppliers, and customers/clients to be aware of a possible sale. The sales process also cannot distract the owner(s) from managing the day-to-day operation of the business. Real estate is also much easier to finance than a business purchase, unless the acquirer is a first-rate company.
It is important that sellers do their own due diligence on a prospective acquirer to make sure that the acquirer can complete the transaction if both sides are in complete agreement on terms and conditions. The seller has most likely retained a professional intermediary, paid that firm a retainer, retained legal and accounting professionals, etc. Since the potential acquirer will want to do his or her own due diligence, it is important that the seller do so also.
Where is the Money?
All acquirers, whether big or little, should be able to show the seller that they have the financial resources to make the deal. Unless, the acquirer is a large and successful company, where acquisition funds are not an issue, an acquirer’s financial statements and/or the company’s financial statements should be made available. A credit report would also be important. An acquirer who can complete the sale, subject to due diligence, should not have difficulty supplying this information.
What do References Reveal?
A seller should check for information about any prior deals that the acquirer has made. This would include any financing contacts or other lenders. This list would include any previous acquisitions. Talking to a previous seller can reveal how their deal went; how the acquirer was to work with; whether they did everything they said they would; etc. Talking to managers of previous acquisitions by the buyer can tell a seller how employees were treated, etc.
Does the Chemistry Work?
It is important that the chemistry clicks between the seller and the acquirer. Due diligence on both sides can help build the trust necessary for the deal to work both ways. If the seller is staying with the company for an extended period of time, it is also critical that he or she is comfortable not only with the acquirer, but also with the new management team if it’s not the people who are doing the deal.
Several million businesses change hands every year. The vast majority of sellers are selling a business for the first time. It’s very important that they use professional help. Without it, they may likely receive less than fair value, be involved in a difficult selling experience, and may not receive all of the monies due them. Professional advisors such as intermediaries, lawyers (only those with deal experience) and accountants are necessary.