. . . THE REALITY IS THAT ONCE A
COMPANY CHANGES HANDS, IT’S FAIR
GAME FOR THE NEW OWNER TO DO
THINGS HIS OWN WAY.
an injection of capital or corporate
know-how they don’t possess.
In other words, you know in your
heart that hanging on to the compa-
ny for too much longer will lead to
its downfall. (It also may be that you
started the company fully intending
to sell it within a few years).
Your best buyers here are private
equity firms, or companies that op-
erate in related industries that want
to acquire you to gain access to a
product you supply or to distribution
avenues your firm has established.
For example, you might make high-
grade metal tubing and find yourself
on the receiving end of a buyout
offer from bicycle manufacturer, or
a firm that makes heating coils and
wants to gain access to the raw ma-
terials you work with.
The vertical integration of your
product and the buyer’s is a natural
fit that saves them costs or ensures
consistent supply. Years ago, such
vertical mergers were discouraged
by U.S. anti-trust laws. But, regu-
lators rarely take notice of these
things anymore.
Valuation
Before you can proceed with a sale,
though, you have to know what your
company is worth. And that number
has to be based on things like earn-
H O T
RUS S I AN
ings, expenses, taxes, depreciating
assets, and the quality of your work-
force.
It’s not a number you pull out of
the air. And you can’t simply go with
the conventional “three times annu-
al earnings” formula.
Most business sale advisors tell
entrepreneurs to work with profes-
sional valuators to come up with a
price that property reflects the hard
and soft factors (including the own-
er’s goodwill within the business
community) that combine into the
number a buyer will pay.
Buyers, meanwhile, will hire their
own valuation experts to comb over
your operation to arrive at their own
number. Generally, third party buy-
ers and competitors will spend the
longest going over your books prior
to making a solid offer. Be prepared
for this.
In rare cases, the business sale
advisors you work with may suggest
you get prices from two valuation
firms. They’ll do this in cases where
they think a potential buyer is plan-
ning to try and knock down your
asking price. Their goal here is to
ensure you have independent eval-
uations in your court. Since a profes-
sional business valuation only costs
a couple thousand bucks, consider it
cheap insurance.
BRI D E S®
-
MEN’S
L IFESTYL E
Selling a Company is a lot of work
The other reason to start thinking
about a sale or handoff now is that,
simply put, it’s time consuming and
stressful. And although a sale can
come from ‘out of the blue’, it rare-
ly happens. However, I DO know a
software developer who got an un-
expected offer to buy his firm from a
purchaser with ‘deep pockets’ in 2005.
He was only 45, having founded the
firm in 1982.
The offer was generous so he ac-
cepted, only to face overwhelmingly
detailed requests from the acquiring
firm’s army of lawyers. In the 23 years
he owned the firm, he’d focused on
growth, not paperwork. That put him
at a disadvantage when the buying
party began its due diligence.
It also made it hard to keep running
his business. He made the decision to
hand off day-to-day operations to his
management team, so he could focus
on the sale. Luckily, his firm had 80
employees and the management was
first class. Had it been a smaller shop,
he told me, the sale process might
have taken down the ship.
In That arrangement got him to the
deal’s close. And, the next morning
he started on his next journey – what
to do with his time now that he was
suddenly retired. But that’s a story for
another time.
M A G A ZINE
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