I’ve worked on a number of transactions during my career. The first one was the $5 billion merger between Burroughs and Sperry. The rest have been far smaller. The lessons I’ve learned in the first and across many of the others are tried and true. Below are my top five pieces of advice for companies looking to exit or for those looking to make an acquisition.
- Get your financials in order. I’ve seen countless companies come to market with financial statements which were terribly prepared. In fact, I shouldn’t even use the word prepared. One sent a balance sheet that didn’t balance. In the words of my son, “then it’s just a sheet.” That transaction fell through. Properly prepared financials not only put the company in a better light, they also build trust between the buyer and seller. Once I am able to start poking holes in the financial statements, I no longer trust anything the seller tells me. If you’re buying and need financing, the bank is going to expect solid financials from you as well.
- Whether you are buying or selling, hire a good transaction attorney. This is an attorney whose work is primarily transaction based. You don’t want a generalist who does transaction work from time to time no matter how often you golf with them or how low their score. Good attorneys can get a deal across the finish line. This past November 15, I organized a call with attorneys on both sides of a transaction and proposed a January 1 closing. That’s an aggressive timeline right before the holidays but I knew the attorneys on both sides. The major deal points were already agreed so I asked that the first draft of documents be pretty close to center and something they would agree to if they were on the other side. They honored that request and the deal closed on time and with no late nights.
- Keep your deal team as small as practical but make sure all the disciplines are represented. Operations, IT, HR, Finance, Sales & Marketing, R&D (my apologies to any one I left out). Don’t try to go it alone. You need to bring some people into the tent and trust them to keep it confidential until the time is right. I’ve seen it done the other way with poor results.
- While you may or may not elect to have an advisor (investment bank), if you do hire one make sure they are rock solid. Despite the perception of high costs (they aren’t cheap) they can maximize the sales price and keep a deal on track. That company I mentioned above that had a balance sheet that didn’t balance had an “advisor”. I don’t know what they got paid, but I do know it was too much. While my example relates to sell side, buy side representation can be just as valuable.
- Your board, if you have one, is there to ask high level questions and assess the deal you put in front of them. Don’t expect them to get involved in the details. To the extent you have board members with deal experience they can be a valuable sounding board and may offer resources that will be helpful to you. Reach out to your board to get their guidance but it’s not their place to run the deal. I’ve seen that occur and it didn’t end well.
There you have it. My top five pieces of advice when you are buying or selling a company. Need a good resource. I know quite a few. And remember, I Don’t Golf.
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