As the late comedian Gilda Radner said: “It’s always something.” The same is true of the three P’s of conducting a sale: “Whether it’s the preparation, the process or the post-closing, it is always something; something unexpected will always come up,” said Tim Ozark, chairman and CEO of Aim Financial Corporation and CEO and president of TKO Finance Corporation. Ozark was a panelist for an M&A-focused event put on by the Grant Thornton-sponsored Private Directors Association. Other panelists were George Cook, recently retired chairman of MacLean Fogg Company, and Samira Salman, founder and CEO of Salman Solutions. All the panelists have a wealth of experience in the sale of a business.
Their advice? Do a mock sale before the sale and view your preparation as an outsider would. Have a virtual or actual data room for gathering and storing pertinent documents, get your documents organized, and get your financial, legal, tax and other items into place.
“Nine times out of ten, going through [a mock sale] will reveal something that’s not done or completed,” said Salman.
Taking care of people
Almost more important is staying on top of the people portion of a sale. Said Salman: “For all the time you’re spending on getting documents organized and a really good process in place, double that on making sure people are aligned and you’ve addressed people challenges that may arise.” Be ready to answer concerns such as continued employment.
Ozark explained: “They’re going to figure out pretty quickly that you’re up for sale.” Far better, he said, that they seek answers from you.
Don’t rely solely on a management team to convey news; it may be that not everyone on the team has the skills or abilities to make communications down the line. Salman recalled a situation where she had to call someone on a seller’s team to ask for certain documents, only to realize the person had no idea why she was calling or what was happening. Her advice: “Don’t make assumptions that people have appropriately communicated what’s going on.”
At the same time, you must exercise control over information. Cook elaborated: “You want people to hear your message and not some strange message. You don’t want just madness all over the place.” A main goal is to avoid major disruption.
The management team as sellers
“Many times you’re selling the management,” said Cook. “That’s what the buyer is interested in.”
Management should be brought in upfront as part of the process. They will then “sell the business and be incentivized on a weighted basis based on the price,” Cook added. Severance arrangements should be in place in case the buyer does not take someone on. “We want [management] to feel protected, we want them to like the company, we want them to make the best efforts to get the highest price in the sale process,” said Cook.
Yet you want to use caution to avoid having someone on the seller’s management team, even inadvertently, share information that it would be wiser not to share with the buyer.
When selling a biz, presentation and culture matter
When selling a business, how your management team presents itself is critical. “You are negotiating from interaction one, whether emailing, meeting in person, sending a text message or touring the data room,” said Samira Salman, founder and CEO of Salman Solutions, during a Private Directors Association event. “Does the team sound and look professional? Are they appropriately dressed? Are they communicating well? These things make a difference and can give a buyer confidence that your organization is professional, your numbers are correct, your documents are organized. Sloppiness, on any level, makes negotiation much tougher.”
Seek help from the board
Culture matches are tremendously important. Yet “talking culture can be like navigating a boat,” said Tim Ozark, chairman and CEO of Aim Financial Corporation. “You may be able to move it X degrees, but you’re not going to change it by 180 degrees. If you are the seller — say, the founder — and you’ve grown your management team and employees, and you’ve got a transparent workplace focused on respect, and you know the culture fit [with a buyer] is not right, don’t do the deal.”
George Cook, former chairman of MacLean Fogg Company, has been on the buyer side in 40 transactions. “Many times we’ve purchased something where we were not the highest bidder,” he said, “because it mattered to the seller — a family company — that the culture was their culture.”
Once the purpose of the sale is well-defined, seek the input of the board of directors, said Ozark, “since they have been working on strategic planning, succession planning, governance, cultures and the unforeseen period of transition — which a sale will absolutely cause because there is a lot of disruption with a sale.” And a board can help with vetting advisers you’re going to need to provide such critical input as legal and tax advice.
The board’s role is important later in the process, as well, Cook said: “Deal fatigue, particularly for an owner, can set in. If you get into an emotional or critical juncture in negotiations, pause to check with your board. This gives you time to think, get emotions under control and move forward.”
Don’t make tax taxing
Tax and estate planning are critical to the sale of any company. The bigger point, said Salman, is to think about the estate and tax structures, and how entities are structured, way before a sale. It’s also good practice to review those structures periodically. “If you are on a private company board, start asking questions: What do we look like? How are we structured? For instance, you might have intellectual property in separate entities and have licenses that allow more flexibility in the sale. It’s not about having everything in one entity and selling that chunk.”
Ozark agreed. “Having the right legal and tax accounting advice on the wealth management side in terms of where an owner and a company want to be is critical to avoiding very costly mistakes.”
That deals are fraught with complexity is something all panelists addressed. Sometimes parties get too far along in the process to start over. Said Cook: “If you have maybe 20 things you might fight about, find the five you really care about, and move along and get the deal done.”
A delay in timing can kill a deal, according to Ozark: “You have to have a pace, and you have to move along. You have to know exactly why you’re selling, have the best possible advisers laying out a structure in advance and not be afraid to negotiate.”
Salman was blunt: A seller needs to gather all the advisers in a room and make them talk — legal, tax, accounting, banking — and come to a consensus on certain items.
The more time advisers have to do their work, the less they’re crunched and feeling pressured to finish — and the less they’re going to overlook. “When you’re doing everything last minute, and everybody’s on top of each other, the more you lose track of fees,” said Salman.
“I think you have to be honest with yourself that some of your advisers and board members, who were excellent at running the company, might not be the best advisers when you’re trying to sell..... The biggest mistakes I’ve seen are when people are scared not to use current advisers because they don’t want to hurt people’s feelings. But this is business, not kumbaya
.” – Samira Salman, founder and CEO of Salman Solutions
Bring in tax, other advisers, well before the end
The panelists recounted situations where advisers were not brought in until too late, which led to issues around money and fees, and even with the IRS. “Board members and management committee members should start looking at structure and talking to advisers today, regardless of whether you want to sell,” said Salman. “It gives you more options and an understanding of what you’re worth.” She gave the example of somebody who spent his entire working life building a business, then walked away with much less than he could have at the time of sale, all because of poor tax planning.
Said Cook: “Right away, at the beginning, tax people have to have a seat at the table.”
The Private Directors Association (PDA) is a national network in which executives and professionals interested in board service can find and meet with those interested in securing exceptional board members. Grant Thornton is a PDA sponsor.
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