Just because sellers are following the latest merger trends, doesn’t mean they’re doing it successfully. This equates to dollars lost for sellers. To get the top price for a business, sellers need to focus on the two main components of their company’s value – the value created by management and in the sales process.
Over the last year alone, Greg Mickelson, president of VPI in Sheboygan, has sold five different businesses in three different transactions. From his experience, he’s found that to get a good value when selling a business, management needs to set goals for superior results.
"The best way to do this is to have a well-articulated strategy that you’ve been implementing for a period of time and a track record of accomplishing superior business results," said Mickelson. "If you don’t have this in place, it’s going to be a struggle to sell the business because it will be harder for buyers to rely on future projections."
Selling a business also is not the time to rely on instincts or advice from friends.
"If you don’t have excellent business contacts, this is where an investment banker’s experience with buying and selling businesses can bring value," Mickelson said. "When we sold our businesses, our investment bankers walked us through the sales process. Their expertise and contacts helped us to get a higher price for our businesses."
Since value can be both created and destroyed in the sales process, Bob Agnew, president and chief executive officer of Peterson Industries in Sturgeon Bay, relies on a top-notch advisor team to create value during the sales process.
Agnew, who has sold two businesses and acquired two others, found that when preparing to select an advisor team, sellers should provide an executive overview of the business to advisors who, by reputation, appear to be best qualified for the project.
Since the right advisor team can make or break a great deal, cost shouldn’t be the sole factor when determining whom to hire. Many times, the cost savings achieved by picking the lowest-cost advisors are spent many times over in lost value to the seller.
"At the end of the day, it is really the people who work on the assignment who make the difference," Agnew explained. "If you go to New York and hire an expensive investment banking firm to work with you, you better be sure that you know which people are going to work on your assignment. In the end, it is the team who actually works on your project and their experience, qualification and motivation that makes the difference."
Once an advisor team is selected, business owners need to take time to plan and research their appropriate next moves with the team because the right moves at the right time will create the greatest value.
Neil Leland, director of finance of Bemis Manufacturing Co. in Sheboygan, who has been involved in the sale of six businesses, found that to get a top price when selling a business, a trusted advisor team needs to work together with the seller to evaluate options, prepare offering materials, coach the management team and market the business.
"An advisor team will recommend the best process and make proactive, ‘in-flight’ adjustments, as well as understand and manage the seller’s risk and objectives," Leland said.
When preparing the offering materials, Leland said that sellers should position all aspects of the business in the best possible light with a compelling description that clearly highlights the opportunity and value.
To best determine the current market value for a business, Leland advised finding an investment banker who is actively involved buying and selling businesses.
He said the seller’s advisor team also can generate options and enhance value during the marketing stage by understanding the buyer’s perspective, making initial contacts in a professional and credible way, knowing when and how to address value, bridging cultural gaps between parties, and bringing up issues and data at the right time.
Even though an increasing number of buyers and sellers complete transactions, sellers don’t always maximize value.
Some of these failures can be traced back to the written contract. While advisors can guide sellers through the process, the seller is the one who needs to understand the details of the deal before signing on the dotted line.
According to Peter Sommerhauser, attorney with Godfrey & Kahn, a well-crafted letter of intent facilitates the sales process and helps prevent future surprises.
"When putting together a letter of intent, sellers are in the courting stage," Sommerhauser said. "If they have a business that people want, then they can get resolution of some tough issues that could pose potential problems down the road."
On the other side, if a seller has a difficult-to-sell business, tough issues should be avoided as much as possible in this stage.
Next, during the due diligence process, he said that sellers should make it easy for buyers to conduct a due diligence investigation by carefully organizing the business for easy access; and prioritizing and staging critical and sensitive items.
"Since the due diligence process is critical, a good investment banker and attorney will help the client organize their due diligence process so it is well thought out and staged in a way that best benefits the seller," he said.
Before closing the sale, sellers should ensure that the final agreement and closing documents completely and accurately reflect their understanding of the deal.
Most sellers will find that by hiring the right advisor team, they will be more satisfied with the overall sales process and reap more value from their businesses.
Linda Mertz is a managing director at Mertz Associates Inc. in Milwaukee, an investment bank focused exclusively on middle-market mergers and acquisitions. Peter Sommerhauser of Godfrey & Kahn and Lee Riordon from Deloitte and Touche also contributed to the content of this article. Mertz can be reached at (414) 258-2288.
August 5, 2005, Small Business Times, Milwaukee, WI
