{"id":561119,"date":"2013-10-30T14:23:30","date_gmt":"2013-10-30T18:23:30","guid":{"rendered":"https:\/\/vrbbd.wpengine.com\/vrbbgreenbay\/surprises-ceos-face-selling-companies\/"},"modified":"2022-01-31T12:43:57","modified_gmt":"2022-01-31T17:43:57","slug":"surprises-ceos-face-selling-companies","status":"publish","type":"post","link":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/surprises-ceos-face-selling-companies\/","title":{"rendered":"Surprises CEOs Face When Selling Their Companies"},"content":{"rendered":"

Surprise #1: Substantial Time Commitment<\/strong><\/p>\n

In the real estate business, once the owner engages the broker there is very little for the owner to do until the broker presents the various offers from the potential buyers.\u00a0 In the M&A business, there is a substantial time commitment required of the CEO\/Owner in order to complete the sale properly, professionally and thoroughly. The following examples are worth noting:<\/p>\n

Offering Memorandum: <\/i><\/p>\n

This 30 + page document is the cornerstone of the selling process because most business intermediaries expect the potential acquirers to submit their initial price range based on the information presented in this memorandum.\u00a0 The intermediary will heavily depend on the CEO\/Owner to supply him or her with all the necessary facts.<\/p>\n

Suggestions of Potential Acquirers: <\/i><\/p>\n

Chances are that the sales manager is the only person who knows the best companies to contact and those not to contact (competitors).\u00a0 Arguably, this information should be mostly supplied by the intermediary, but as a thorough team effort, the CEO\/Owner should play a major role in this endeavor.<\/p>\n

Management Presentations: <\/i><\/p>\n

Assuming the intermediary conducts the normal process of boiling down the bidders to 4 or 5 potential acquirers, it is then customary to have management presentations before the final bids are submitted.\u00a0 In order to help extract the best offers, it is advisable that the CEO show the benefits of combining the acquirer and seller and\/or the future upside for the selling company.<\/p>\n

Surprise #2:\u00a0The Need to Enjoin Other Employees in the Process<\/strong><\/p>\n

A number of owners selling their company are paranoid about a confidentiality leak regarding the sale of their company.\u00a0 In fact, some owners prefer that no other person in the organization is aware of the pending sale of the company.\u00a0 At a bare minimum, the CFO and Sales Manager should be informed.\u00a0 The CFO will be asked to pull all the financials together, to supply projections, to articulate reconstructed earnings (add-backs) and to supply monthly statements\u2026all of which suggest that the company is being sold.\u00a0 The Sales Manager will be asked to supply the names of synergistic companies in or around the particular industry.\u00a0 And, perhaps, the CEO\u2019s secretary will be asked to set up a \u201cwar room\u201d where all legal and contractual information is assembled for the buyer\u2019s due diligence team.\u00a0 In order to protect the company from confidentiality leaks and assure retention of key employees, the CEO\/Owner should implement \u201cstay agreements\u201d for these key employees.<\/p>\n

Surprise #3: The Need to Maintain, or Accelerate, Sales<\/strong><\/p>\n

The tendency for some owners is to become so distracted with the M&A process that they take their \u201ceye off the ball\u201d in running the business on a daily basis.\u00a0 Potential acquirers will be watching the monthly sales reports like a hawk to see if there is a turn-down in business.\u00a0 Acquirers become very apprehensive when they see a recent downward trend in the company they are about to acquire and may, as a result, want to negotiate a lower price.<\/p>\n

Surprise #4: A Confidentiality Leak<\/strong><\/p>\n

Naturally, most CEOs expect the M&A process to go smoothly and usually it does.\u00a0 However, there should be a contingency plan in place for such occurrences as confidentiality leaks.\u00a0 The degree of damage determines what action should be implemented.\u00a0 On one occasion the draft of the Offering Memorandum was e-mailed to the CEO\/Owner for his corrections; however, the sender from the brokerage firm used one incorrect letter in the CEO\u2019s e-mail address.\u00a0 As a result of this misstep, the e-mail was rejected by the CEO\u2019s computer and ended up in the company\u2019s general mailbox which was administered by the employee in charge of IT.\u00a0 The employee was told by the quick-thinking CEO that the Offering Memorandum was being used to raise growth capital.\u00a0 Luckily, the incident went no further.\u00a0 Much more serious confidentiality leaks can occur, and it is wise to discuss ahead of time how the matter is going to be handled with those concerned.<\/p>\n

Surprise #5: Unexpected Low Bids<\/strong><\/p>\n

Ultimately, the M&A market sets the price of the company. However, rarely does a seller go to market without having certain expectations of price.\u00a0 Let\u2019s use a hypothetical case in which a company is growing at 15% annually.\u00a0 The CEO\/Owner believes that it is worth $6 million based on $1 million of EBITDA.\u00a0 However, the top bid is $5 million cash or, obviously, 5 times EBITDA.\u00a0 Assuming the business intermediary has exhausted the universe of acquirers, the seller has two choices to reach his desired $6 million selling price.\u00a0 Either he can take the company off the market and return several years later when either the company\u2019s earnings have improved or when the M&A market has heated up.\u00a0 Alternatively, the CEO can negotiate further with the top bidder by selling 80% of the company now and the remaining 20% in three years on a pre-arranged formula on the expectation that business will improve.\u00a0 Or, the CEO can sell the company now for $5 million with an earnout formula that might give him the additional $1 million.<\/p>\n

Surprise #6:\u00a0The P&S Agreement is Not What the CEO Expected<\/strong><\/p>\n

Numerous CEOs drive the M&A process to the letter of intent and then turn over the deal to their attorney to iron out the details of the purchase and sale agreement. \u00a0While the CEO should not micro-manage his designated professional advisors in the transaction, he should be involved throughout the process, or otherwise the CEO will invariably object to the final wording of the document at the signing state.\u00a0 The area most likely to be overlooked by the CEO\/Owner is the critical section of reps and warranties.<\/p>\n

Surprise #7: Agreement of Other Stakeholders<\/strong><\/p>\n

While the CEO can negotiate the entire transaction, the sale is not authorized until certain stakeholders agree in writing, namely the Board of Directors, majority of the shareholders, financial institutions which have a lien on certain assets, etc.<\/p>\n

Conclusion<\/i><\/strong><\/p>\n

For many CEOs, selling their company is a once in a lifetime experience.\u00a0 They may be very experienced, very talented executives, but they can also be blind sided by surprises when selling their company.<\/p>\n","protected":false},"excerpt":{"rendered":"

Surprise #1: Substantial Time Commitment In the real estate business, once the owner engages the broker there is very little for the owner to do until the broker presents the various offers from the potential buyers.\u00a0 In the M&A business, there is a substantial time commitment required of the CEO\/Owner in order to complete the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[3],"tags":[],"class_list":["post-561119","post","type-post","status-publish","format-standard","hentry","category-seller-articles"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/561119","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/comments?post=561119"}],"version-history":[{"count":0,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/561119\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/media?parent=561119"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/categories?post=561119"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/tags?post=561119"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}