PRICE
The
single greatest issue to a seller is the Purchase Price. The seller
always wants a premium price -- often, even though it is
unrealistic, a premium price compared to the best price that
occurred during the last valuation peak. At a minimum, the seller
wants the best price compared to real transactions in today’s
market.
Reality is much more complicated. Remember, it takes both a willing
buyer and a willing seller to make a successful transaction. As the
seller, you want the best price. The buyer also wants, and will
insist on, a good deal. You can be assured there will not be a
closing of the transaction until the buyer is comfortable that the
acquisition is also a good deal from the buyer’s point of view.
The
buyer’s requirement for a good deal needs to focus the seller on
maximizing the value of the business and carefully preparing before
the sale. The strengths of the business must be maximized and the
weaknesses addressed prior to contacting any prospective buyers.
Careful preparation of information and professional marketing of the
company or business unit to prospective buyers will increase the
price that buyers are willing to offer. LVI is an expert in
helping sellers achieve their goals by preparing the business for
sale, developing necessary information and then professionally
marketing it to multiple buyers.
Once
the business has been prepared for sale and it is being
professionally marketed, perhaps the only sure way to be confident
of getting the highest possible price is to involve multiple buyers at the same
time. Therefore, LVI not only has a large network of prospects, but
we also know how to cultivate, engage and develop interest in real
buyers. We know that the fear of missing out on an acquisition
opportunity is the best motivator to help a buyer overcome the fear
of overpaying and to make the best possible offer.
TERMS
Each transaction has its own issues. In most transactions, the
terms and conditions of the transaction are just as important as the
price. Both the buyer and the seller have to agree on numerous
issues in order for a deal to close. While the seller is focused on
the immediate purchase price, the buyer is focused on the quality
and dependability of the projected revenues and profits after the
sale. The buyer is focused on the risks that the projected financial results may not
materialize and the buyer will want terms in the agreement that
reduce the buyer's risks.
Sellers would always prefer 100% cash at closing. Buyers seldom are
comfortable enough with the expected future performance of a company
to pay a firm, non-adjustable, absolutely fixed price at closing.
There are almost always good reasons for finalizing (or truing up)
the Purchase Price 90 days to 6 months or more after the closing.
Buyers can, and will, pay a higher price if the seller is willing to
absorb some of the risks of shortfalls in revenue (or profits)
during the 12-24 months after the transaction closes. For example,
the seller is always more confident than the buyer that certain
customers (or accounts) are good and will continue to pay for
ongoing services such as monitoring, extended warranty, upgrades,
etc. In this situation, the seller will get a higher price if the
seller “guarantees” the revenue from the customers for a period of
time. On the other hand, there are limits to a seller’s willingness
to guarantee future results. For example, sellers will usually be
uncomfortable about the future level of service to be provided by
the buyer and, therefore, will be unwilling to “guarantee” the
revenue if a customer leaves or doesn’t pay because of the buyer’s
poor service. LVI helps to negotiate the details of the price and
terms that best serve its client’s needs. LVI is highly experienced
at helping a seller to negotiate the best possible terms and price.
Typically, agreements to sell a business or significant assets
(“Purchase and Sale Agreements”) contain 10-20 sections with many
different terms in addition to payment terms and schedules,
including, among others:
·
Indemnifications
·
Purchase Guarantees
·
Holdbacks
·
Earn-Outs
·
Representations
·
Non
Competes
·
Definitions (very Important)
·
And More
LVI’s
contribution to the negotiation of these terms is to focus on the
business consequences (risks and costs) of each term and to work
closely with the seller’s legal counsel to be sure the language
drafted by the buyer’s legal counsel accurately reflects the mutual
understandings of both seller and buyer.
CONFIDENTIALITY
Sellers are always very concerned about the possibility that early
disclosure of the pending sale will cause employee turmoil, loss of
customers and disruption of new sales to new customers. Sellers
should be concerned; rumors of a pending sale create problems.
If competitors learn of a pending sale, it is not uncommon for them
to tell sales prospects and try to take employees and customers away
from the selling company.
LVI
helps prepare the seller; first, to minimize the risk of information
leaking out regarding the planned sale and second, to minimize the
damage caused when knowledge of the plans finally does leak out
(sooner or later, it always does).
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