Leon D. Garber
Gaither & Garber and Associates, Inc.
With negative economic news grabbing headlines across the nation and right here in Hampton Roads, many business owners may think that it’s not a good time to sell their company. But fortunately for owners looking to exit, that’s not necessarily true.
Business sales are still taking place with sellers capturing attractive prices and favorable terms when the deal is structured properly. Both the seller and intermediary need to recognize the shifts in the financial world and factor those challenges into the overall plan to get the business sold. Some of the keys to success include solid preparation prior to listing and a well-thought-out marketing plan. Also, a business owner needs to have realistic expectations in terms of seller financing.
The old adage, “prior preparation prevents poor performance,” has never been more true! In the world of mergers and acquisitions, thorough preparation is inevitably the difference between success and failure. During tough times the deals that will get done are those that go to market after having been meticulously prepared!
An excellent intermediary will have already done his own thorough due diligence and looked at every aspect of the company from both a buyer’s and financier’s perspective. Problems uncovered can be fixed or at least discussed with a risk mitigation plan put in place. Opportunities can be discovered, some to be exploited immediately and others offered up as future growth opportunities to a potential buyer. Perhaps those newly uncovered opportunities will lead the team to a whole new group of potential buyers who were previously unidentified.
Lining up lenders prior to going to market and getting financing pre-approved sets the stage for success! Given all of the challenges in the current financial crisis, it is a true “go – no go” criteria that needs to be dealt with before marketing begins. If a lender won’t do the deal, then the deal won’t get done. On the other hand, pre-approval from a lender can give a buyer great comfort and confidence moving forward, which helps sellers achieve the best outcome.
With the business prepared, next comes the marketing plan. Starting with the end goal in mind, it’s time to identify those categories of buyers most likely to meet the seller’s needs, and able to do so in the current economy. In the constellation of potential buyers, which group has the highest likelihood of being able to make the deal happen and get to the closing table? Solid research is required to identify those who are able to bring the financial wherewithal as well as the necessary business acumen to the table in order to satisfy the lender’s heightened scrutiny.
Oftentimes during a tight economy sellers must share the risks with both buyer and lender in order to achieve the highest value. In many instances the value of a successful business is greater than the fixed assets; that difference is known as goodwill. With today’s tight lending environment, a seller can still get a strong value vvfor the business, but may need to finance more of the purchase price than before. Typically, seller financing has been somewhere between 5 and 15 percent. With the current lending climate, seller financing may approach 15 percent to 25 percent. Regardless of the capital structure or finance considerations, professionally crafted and creative deal structure is the key during a difficult economy.
Despite—or perhaps because of—the economy, there are still plenty of buyers looking for good opportunities in the marketplace! A well-prepared business can be a very attractive acquisition candidate. Excellent preparation and savvy representation is the order of the day.
Leon D. Garber, CBI, is the President of Gaither, Garber & Associates, Inc., and is a Certified Business Intermediary specializing in crafting and executing exit strategies for business owners. He can be reached at 615-7154 or e-mail leon@gaithergarber.com.
