Don’t try and go it alone without a good team around you
Selling a business is a huge undertaking and requires an experienced team of advisors who can help you to manage the process. You need an experienced team of professionals including an M & A advisor, tax advisors, and an experienced M & A lawyer.
Don’t have a weak financial package
The buyer will spend a great deal of time and resources on financial due diligence so you need to have your house in order. You need to have a good track record of financial “professionalism” including having financial statements reviewed by a credible accounting firm, compliance with Canadian GAAP, and a spotless record with the Canada Revenue Agency
You also need a rigorous annual budgeting process and credible forward-looking financial projection.
Don’t sign a deal without a competitive bidding process
Negotiating with only one bidder (particularly when the bidder knows that they are the only potential buyer) puts the seller at a significant negotiating disadvantage
The best deals for sellers usually occur when there are multiple potential bidders (and the bidders know that it is a competitive process) where the seller can leverage the competitive situation to get a better price.
Don’t withhold material information during due diligence
Having “ghosts in the closet” that come out unexpectedly during due diligence is almost a sure way to kill a transaction or reduce the valuation. Don’t underestimate the sophistication of buyers as they generally have teams of people that comb through due diligence materials and they will likely find out about most of your issues. If you are proactive you can control the narrative.
Don’t let information about a deal leak before it’s completed
This can have massive repercussions with employees, customers, suppliers, and channel partners and could kill the deal with the buyer. Determine a close group of senior management to involve in the process and be very careful about data leaking outside of this group
Don’t let the deal distract you from running your business
Although an M & A deal may be the single largest business transaction you do in your life, you can’t take your eye off the ball and let your business slip. The last thing you want to do is to have sales, pipeline, or profitability numbers slipping significantly in the middle of a deal as this will raise enormous red flags.
Don’t let emotion get the better of you
Too often entrepreneurs let things get personal or get highly emotional when someone tells them that “their kids are ugly”. This can cause serious errors in judgment in either pushing back too hard or taking a knee-jerk reaction.
Remember, it’s just business and you need to remain calm, professional, and objective. This is where having an experienced roster of advisors can help to act as a buffer.
Don’t be ill-prepared for due diligence
It takes time to build a proper data room and you need to have all of your ducks in a row or you will lose the confidence of the buyer. Time is your enemy in any M & A transaction, so you don’t want to be spending weeks during a negotiation pulling together documents and populating the virtual data room
Don’t sign a Letter of Intent without having all of the key business terms settled
A selling company’s bargaining power is greatest prior to signing a Letter of Intent. Once an LOI is signed, the leverage often swings to the buyer as they will typically require a “no shop” clause or exclusivity provision prohibiting you from talking to other suitors.
The last thing you want to be doing once you get to the legal agreements is negotiating key business terms. This will drive up your legal costs and bog down the process in unnecessary delay.
Don’t ask for a higher valuation without providing a strong business rationale
There is nothing wrong with saying during negotiations that you think your company is worth more. However, you need to offer up fact-based well thought out arguments as to why. It’s not good enough to say “just because” as you will lose credibility with the buyer