Selling a Privately-Held Business pt.1

Posted by Thomas E. Sowers on

Part 1 – Assembling A Team

Welcome to my first post on the Berman Fink Van Horn corporate law blog. In this blog we plan to discuss and share insights into corporate law issues. Most of my posts on the blog will focus on issues relating to M&A and corporate finance transactions.

I have decided to begin with a series of posts in which I walk you through the M&A process from the seller’s perspective. Specifically, in this series I will discuss the M&A process and issues commonly seen in transactions involving private company buyers and private company sellers for small to middle market companies.

There are many reasons why a seller may make the decision to sell its business. These include the desire of the owners to retire, conflict among the owners, a lack of capital to grow the business, loss of key customers and a difficulty dealing with competitors. It could be some combination of the foregoing, or any other number of reasons. Regardless of the seller’s specific motivations for wanting to sell the business it important that the seller spend the time necessary to prepare for the sale of the business before diving into the process of speaking to potential acquirers and otherwise letting it be known that the business is for sale.

Preparing for the sale of the business generally involves getting the company ready from a corporate housekeeping perspective and thinking through and anticipating issues specific to the seller’s business that likely will need to be handled during the acquisition. It oftentimes will also include having the key owners think through and prepare a retirement plan to be certain that the needs of the owners will be met coming out of the transaction.

Because of the multitude of issues involved with preparing the business for a sale, the first step in the process of preparing the business for a sale should be assembling a capable team of advisors to help the seller. A typical team of advisors to represent a seller and its owners includes a financial advisor, investment banker/broker, certified public accountant and an attorney.

A financial advisor advises the selling owners on issues relating to the owners’ personal finances. The financial advisor will review potential transaction scenarios and work with the selling owner’s to be certain that the selling owners’ financial needs and goals will be met in the transaction.

An investment banker/broker assist the seller on issues relating to valuation, structure of the transaction and the marketing of the business. The investment banker/broker will help the seller prepare an offering memorandum or other marketing materials to assist with the sale of the business, as well as help evaluate and negotiate business terms of offers received by potential sellers.

A certified public accountant helps the seller prepare financial statements and other financial reports to be shared with prospective purchasers. The accountant may also advise on the tax implications in connection with a transaction, as well as compensation issues and estate planning issues related to the transaction.

The attorney will work closely with the other professional advisors involved in the transaction to assist with tax and other matters, and to provide legal advice relating to many of the issues being handled by the other advisors. An attorney helps the seller prepare for the transaction by assisting with any necessary corporate clean-up prior to the due diligence process. This often involves the attorney performing a legal audit to identify potential issues that the seller likely will have to deal with in the transaction. The attorney also will help the seller with strategies relating to potential problem shareholders, vendors or customers. Finally, an attorney will advise on and negotiate all agreements relating to the transaction, including a nondisclosure agreement, the letter of intent, the definitive purchase agreement, restrictive covenant agreements and employment agreements.

Generally speaking, the earlier the better in terms of assembling a team for the seller. Many selling owners make the mistake of waiting until just days before closing before thinking about engaging a financial advisor. Ideally, as mentioned previously, the selling owners have worked with a financial advisor to understand the implications of the transaction as to the personal financial goals of the selling owners.