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ALAN N. WINK
DIRECTOR, PRIVATE EQUITY GROUP

The decision to sell a business or bring in new investors is a significant event. The reasons for considering an exit must be discussed and understood by all the stakeholders and the emotions of selling the company that you started and were involved with for so many years takes important preparation. Sometimes transactions are structured that allow the management team to stay on in its existing capacity after a deal is consummated. In addition to dealing with the emotional aspects of a sale, you must also deal with the financial considerations of a sale. The all-important question of "what is my business worth?" must be addressed.

Hiring the right professionals makes the process of selling your company move along more efficiently and also likely allows you to maximize your proceeds. If you surround your company with the right advisors, it will allow you to continue running your company on a day-to-day basis, while they pursue a transaction. Your team of advisors should include your accountant, a lawyer experienced in transactional work and possibly an investment banker. Your accountant should certainly be your trusted advisor and should possess a thorough understanding of the financial workings of your business. Your accountant along with your lawyer should provide you with expert tax advice on the structuring of the transaction, so that taxes are minimized and cash in your pocket is maximized.

The law firm that you choose to represent you on this transaction may not be the same firm that you use for general legal purposes. You want to retain a firm that is experienced in mergers and acquisitions, including experience in preparing letters of intent, term sheets, definitive agreements, employment contracts, non-disclosure agreements and non-compete agreements.

An investment banker will certainly help you to "package" your business to make it appear most valuable to an investor or acquirer. The investment banker will primarily coordinate your sales process and should have the appropriate level of industry knowledge and experience. Investment bankers are typically compensated with a success fee which is contingent on the size of the transaction. You want to compensate the investment banker so that they have an incentive to get the highest price possible for your company. It is very important that when selecting an investment banker that your transaction size is important to the banker. Large investment banks typically do not get very excited with companies at the lower end of the middle market. Remember, for the investment banker there is "no such thing as a small deal, just a small fee."

The Bottom Line
It's important to remember that a deal is not closed until the agreements are executed and the funds are wired into the appropriate accounts. And, it is not uncommon to see a transaction fall apart at the closing table. In fact, there are a number of things that can happen during the sales process that can cause a deal to "tank." That's why surrounding yourself with the best advisors is a critical step.

For example, misrepresentations in the Offering Memorandum will certainly put any potential transaction in jeopardy. Since a typical sales process takes about six months to complete, your company will report two quarters of results. If those results show a significant decline from prior years and from projections, then future projected performance and the resulting valuation would certainly be questioned.

Additionally, higher levels of customer concentration than originally expected or losing a significant customer can put a deal at risk. Also, sometimes significant issues discovered during due diligence prevent a deal from being completed. For example, if the buyer proposes a significant reduction in purchase price as a result of issues discovered in due diligence and the seller is not willing to accept the new terms; both sides will probably walk away from the deal. Some other reasons that a deal might "tank" include proposed synergies with buyer do not really exist, personality conflicts between the buyer and seller, buyer's stock suffers significant decline during the sales process period and the failure to work with competent professionals.

Selling your business can be a rewarding experience, both emotionally and financially for a business owner. It is an opportunity to put a value on an asset that you helped to create and manage. It is also an opportunity to maximize the value of your investment. Corporations exist to maximize shareholder value. Your middle market company does not have thousands of shareholders, but you would certainly like to maximize the exit value for you and the other equity holders, who worked tirelessly to make your company successful.