Rock LaManna10.13.15
Bringing together two well-matched companies for a successful merger or acquisition is the ultimate satisfaction for a business broker. Over the years, I have found that successful buying and selling companies have subtle attributes that improve the likelihood of a solid match and show a serious commitment to a smooth transaction.
Qualities of a Successful Selling Company
When I work with selling owners, we want the company to be attractive both on first impression as well as deeper scrutiny.
For starters, we want to make sure:
There is a stable or growing market for the company’s products and services.
There has been a systematic approach to building and running the company.
The financial house is in order, and best practices in accounting are implemented.
There is a top notch management team.
The assets (facility, equipment, real estate, etc.) are adequate for the time being or there is a funded capitalization plan.
These larger and more visible business attributes spring from wise decision making, solid business practices, and smart choices by the owner and management team. There are also subtle attributes that improve the odds of the seller finding a successful match. They are:
1. The owner or ownership team is truly ready to sell. A common obstacle to a smooth sale is when the owner believes he or she is ready to sell but, deep inside, but just isn’t ready to give up the business. We know there are many psychological benefits to ownership, including the lifestyle, the paycheck, relationships with co-workers, interactions with competitors, and the excitement of building a profitable business.
Without creating a clear picture of what’s on the other side of the transition and a specific timeline for reaching it, owners often slide back into status quo.
2. The seller is interested in reaching as many buyers as possible in order to find optimal matches. Sellers usually put out a few discreet feelers to friends and friendly competitors when they first think about selling. The next step is to evaluate prospective buyers who are geographically proximate, who offer complementary products or services, who have well-aligned business philosophies, and/or who want to grow by offering the exact products and services the seller provides.
However, even if a seller has a large network of contacts, it can be hard to reach businesses that are ready and able to buy.
The odds of finding a buyer will improve, though, if a seller is willing to consider buyers from different verticals, a different geographic area or even a different industry.
3. The seller is interested in making his or her company more profitable. Buyers are gambling that they can increase sales if they acquire the selling company. Depending on the timeline to sale, you can focus on increasing total sales as well as net profit, making your company that much more appealing.
Sellers who are emotionally ready to sell their company (see #1) are often more willing to consider a variety of options for increasing sales, including changes in key personnel such as the sales manager or bringing in a “rainmaker.”
Although long-term growth is best, an upward trend can make buyers take a second look at a company that might not be an exact fit otherwise.
4. There is a team of experts and advisers in place. Smart sellers know they can’t be experts in everything. They can sell their business themselves or bring in a business broker who is experienced in his or her industry and has the right contacts.
If you choose to go it alone, budget 20-40 hours a week for a month straight to build a team. Another option is to source this work to a business broker.
Either way, it is a strong sign when sellers can confidently assemble a team of professionals to give them the best advice on estate and financial planning, accounting, tax and contract law, sales and marketing, and executive staffing.
5. The selling company operates on a foundation of integrity, transparency and honest communication. Sellers may have private information they wish to keep confidential during the pre-sales process. When I am representing the seller, we will be more successful if we discuss any skeletons in the closet before we receive a letter of intent from a buyer. Buyers are very sophisticated these days. They have access to a variety of resources, including public records and research companies. In addition, buyers will question inconsistencies or hedged answers from sellers. If sellers try to hide information during the due diligence phase, there are legal ramifications as well.
Selling owners who strive to communicate with honesty and integrity, even in uncomfortable circumstances, will have a better shot at completing a sale.
6. The seller is realistic about the value of the business. A third party valuation is one of the early steps in the selling process. When the appraisers complete their report, sometimes owners are disappointed or want to “test the market” by pricing the business higher than the valuation.
While it is true that the valuation is a starting point in setting the sales price, it is based on research and resources available to the buying side as well. Buyers are not going to pay you millions of dollars extra.
Overpricing your company without a logical justification simply becomes another obstacle to sale. Sellers who are realistic about pricing and what the market will bear have a greater chance at a successful sale.
Qualities of a Successful Buying Company
A buyer, too, has visible attributes that suggest an ability to complete a successful acquisition.
For example:
There is sufficient funding for the downpayment.
There is no obstacle to obtaining financing.
There is intent and ability to fulfill the terms and conditions of the purchase.
There is sufficient experience in the buyer’s team to run the acquired company.
There has been a history of financial stability and operational best practices in the buyer’s other companies.
As with the seller’s side of the equation, there are less obvious buyer attributes which signal the buyer is committed to a successful transaction. Some of the attributes are:
1. The buyer is respectful. A buying company that respects the seller is a desirable quality. Professionalism and clear communication are signs that the buyer wants the transaction to work. Buyers that use bullying or “going silent” as a tactic make it hard to bring a win-win attitude to the negotiating table.
A buyer whose style is disrespectful sets off alarms in sellers, who want to be sure their employees will be treated well.
2. The buyer is discreet. Buyers who know how to legally and professionally handle confidential information will be attractive to sellers. These buyers know what information they are required by law to disclose or protect. Discreet buyers know that sellers want to control how and when information about the sale reaches key managers, employees, customers and competitors. They are willing to work with the seller on how that process will happen.
3. The buyer has little or no baggage. Upfront buyers will want to show the seller they have a good reputation. A warning sign is when the buyer resists or postpones sharing information at the proper stages in the discussions. An example of this is a buyer’s refusal to disclose credit history or provide preliminary information detailing how they would finance the purchase.
A seller can run a preliminary check on a buyer with publicly available information.
Here are some warning signs:
Unresolved complaints filed with the Better Business Bureau
A high number of complaints, even if resolved, with the BBB
Complaints on social media sites such as Yelp
Litigation
Job-related injuries
Traffic infractions or injury accidents
OSHA violations
Employee complaints with the state labor board
Bad publicity
Cash-only status with vendors
High turnover in positions such as bookkeeper, chief finance officer, or vice president of finance
Expired licenses or certifications
Incorrectly reported credentials or education of top managers and/or owner
Lawsuits related to unsuccessful business purchases
4. The buyer is organized and can adapt to challenges. Buyers sometimes get bogged down in the due diligence process. Even a well-organized buyer will experience surprises or challenges. Buyers who persevere, solve problems creatively, and work systematically through their part of the process send a strong positive signal to the buyer.
Buyers who have an ongoing interest in acquisitions work hard to have a stellar reputation for follow-through so they can continue to keep the door open for future deals.
5. The buyer has an advisory team. Even buyers who have bought and sold many companies will rely on expert advice. The buyer should understand the industry as a whole and the specifics of the business they intend to acquire. They should be knowledgeable about the buying process and understand how to interpret a valuation. Buyers who eschew the advice of specialists are exposing both themselves and the seller to potentially expensive mistakes.
Not every seller or buyer will have all of the qualities listed above, but those who develop the attributes of these successful buying and selling companies will be well situated for a smooth sale or purchase.
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. He cam be reached at Rock@RockLaManna.com.
Qualities of a Successful Selling Company
When I work with selling owners, we want the company to be attractive both on first impression as well as deeper scrutiny.
For starters, we want to make sure:
There is a stable or growing market for the company’s products and services.
There has been a systematic approach to building and running the company.
The financial house is in order, and best practices in accounting are implemented.
There is a top notch management team.
The assets (facility, equipment, real estate, etc.) are adequate for the time being or there is a funded capitalization plan.
These larger and more visible business attributes spring from wise decision making, solid business practices, and smart choices by the owner and management team. There are also subtle attributes that improve the odds of the seller finding a successful match. They are:
1. The owner or ownership team is truly ready to sell. A common obstacle to a smooth sale is when the owner believes he or she is ready to sell but, deep inside, but just isn’t ready to give up the business. We know there are many psychological benefits to ownership, including the lifestyle, the paycheck, relationships with co-workers, interactions with competitors, and the excitement of building a profitable business.
Without creating a clear picture of what’s on the other side of the transition and a specific timeline for reaching it, owners often slide back into status quo.
2. The seller is interested in reaching as many buyers as possible in order to find optimal matches. Sellers usually put out a few discreet feelers to friends and friendly competitors when they first think about selling. The next step is to evaluate prospective buyers who are geographically proximate, who offer complementary products or services, who have well-aligned business philosophies, and/or who want to grow by offering the exact products and services the seller provides.
However, even if a seller has a large network of contacts, it can be hard to reach businesses that are ready and able to buy.
The odds of finding a buyer will improve, though, if a seller is willing to consider buyers from different verticals, a different geographic area or even a different industry.
3. The seller is interested in making his or her company more profitable. Buyers are gambling that they can increase sales if they acquire the selling company. Depending on the timeline to sale, you can focus on increasing total sales as well as net profit, making your company that much more appealing.
Sellers who are emotionally ready to sell their company (see #1) are often more willing to consider a variety of options for increasing sales, including changes in key personnel such as the sales manager or bringing in a “rainmaker.”
Although long-term growth is best, an upward trend can make buyers take a second look at a company that might not be an exact fit otherwise.
4. There is a team of experts and advisers in place. Smart sellers know they can’t be experts in everything. They can sell their business themselves or bring in a business broker who is experienced in his or her industry and has the right contacts.
If you choose to go it alone, budget 20-40 hours a week for a month straight to build a team. Another option is to source this work to a business broker.
Either way, it is a strong sign when sellers can confidently assemble a team of professionals to give them the best advice on estate and financial planning, accounting, tax and contract law, sales and marketing, and executive staffing.
5. The selling company operates on a foundation of integrity, transparency and honest communication. Sellers may have private information they wish to keep confidential during the pre-sales process. When I am representing the seller, we will be more successful if we discuss any skeletons in the closet before we receive a letter of intent from a buyer. Buyers are very sophisticated these days. They have access to a variety of resources, including public records and research companies. In addition, buyers will question inconsistencies or hedged answers from sellers. If sellers try to hide information during the due diligence phase, there are legal ramifications as well.
Selling owners who strive to communicate with honesty and integrity, even in uncomfortable circumstances, will have a better shot at completing a sale.
6. The seller is realistic about the value of the business. A third party valuation is one of the early steps in the selling process. When the appraisers complete their report, sometimes owners are disappointed or want to “test the market” by pricing the business higher than the valuation.
While it is true that the valuation is a starting point in setting the sales price, it is based on research and resources available to the buying side as well. Buyers are not going to pay you millions of dollars extra.
Overpricing your company without a logical justification simply becomes another obstacle to sale. Sellers who are realistic about pricing and what the market will bear have a greater chance at a successful sale.
Qualities of a Successful Buying Company
A buyer, too, has visible attributes that suggest an ability to complete a successful acquisition.
For example:
There is sufficient funding for the downpayment.
There is no obstacle to obtaining financing.
There is intent and ability to fulfill the terms and conditions of the purchase.
There is sufficient experience in the buyer’s team to run the acquired company.
There has been a history of financial stability and operational best practices in the buyer’s other companies.
As with the seller’s side of the equation, there are less obvious buyer attributes which signal the buyer is committed to a successful transaction. Some of the attributes are:
1. The buyer is respectful. A buying company that respects the seller is a desirable quality. Professionalism and clear communication are signs that the buyer wants the transaction to work. Buyers that use bullying or “going silent” as a tactic make it hard to bring a win-win attitude to the negotiating table.
A buyer whose style is disrespectful sets off alarms in sellers, who want to be sure their employees will be treated well.
2. The buyer is discreet. Buyers who know how to legally and professionally handle confidential information will be attractive to sellers. These buyers know what information they are required by law to disclose or protect. Discreet buyers know that sellers want to control how and when information about the sale reaches key managers, employees, customers and competitors. They are willing to work with the seller on how that process will happen.
3. The buyer has little or no baggage. Upfront buyers will want to show the seller they have a good reputation. A warning sign is when the buyer resists or postpones sharing information at the proper stages in the discussions. An example of this is a buyer’s refusal to disclose credit history or provide preliminary information detailing how they would finance the purchase.
A seller can run a preliminary check on a buyer with publicly available information.
Here are some warning signs:
Unresolved complaints filed with the Better Business Bureau
A high number of complaints, even if resolved, with the BBB
Complaints on social media sites such as Yelp
Litigation
Job-related injuries
Traffic infractions or injury accidents
OSHA violations
Employee complaints with the state labor board
Bad publicity
Cash-only status with vendors
High turnover in positions such as bookkeeper, chief finance officer, or vice president of finance
Expired licenses or certifications
Incorrectly reported credentials or education of top managers and/or owner
Lawsuits related to unsuccessful business purchases
4. The buyer is organized and can adapt to challenges. Buyers sometimes get bogged down in the due diligence process. Even a well-organized buyer will experience surprises or challenges. Buyers who persevere, solve problems creatively, and work systematically through their part of the process send a strong positive signal to the buyer.
Buyers who have an ongoing interest in acquisitions work hard to have a stellar reputation for follow-through so they can continue to keep the door open for future deals.
5. The buyer has an advisory team. Even buyers who have bought and sold many companies will rely on expert advice. The buyer should understand the industry as a whole and the specifics of the business they intend to acquire. They should be knowledgeable about the buying process and understand how to interpret a valuation. Buyers who eschew the advice of specialists are exposing both themselves and the seller to potentially expensive mistakes.
Not every seller or buyer will have all of the qualities listed above, but those who develop the attributes of these successful buying and selling companies will be well situated for a smooth sale or purchase.
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. He cam be reached at Rock@RockLaManna.com.