Tag Archives: Sell side

Main Errors in the Sale of a Company

After talking about the opportunity to get the seller to finance your acquisition, today we discuss the three main mistakes in the sale of a company.

1. Manage Confidentiality

The first mistake is not managing confidentiality. The sale of a company has to be a confidential process in which the entrepreneur, accompanied by financial advisors, shows the company only to those who really have the interest and ability to buy the company. Therefore, you should not present your company to several intermediaries given it will be difficult to manage the confidentiality of the sale process.

What you must do is choose an advisor; only one that is to be used throughout the whole process. They will take care of confidentiality, so to ensure that the whole market will not know about the company that you are selling.

Additionally, in the event that the company not been sold, it would produce a negative perception about your client. The sales process of companies have to be fast and directed to investors that are really interested.

2. Move the Company to a Local Area

The second major error in the sale of a company is to focus the sales process to a local area. The best buyer is probably not in your country, let alone not in your area.

You have to make a broad approach. You have created a lot of value for many years and what does not make sense is to sell to the wrong person or sell the company quickly to the first buyer that shows interest.

Find the one that fits the best and has the greatest capacity within their reserve to pay for the value of your company.

3. Not Using Experienced Consultants

Do not face the process alone! The buyers will bring very experienced advisers, and you must too. Use experienced advisors: there are many pitfalls in a company’s sales process!

There was a case of a customer who was pressuring the buyer to sign the price on offer that they had already submitted, but the offer they had made was on the value of the company and not on the value of the shares. The value of the company had to be subtracted from the debt and, once the debt was subtracted, the value of the shares was very low.

If he had agreed to sign the transaction without understanding the difference between the value of the company and the value of the shares, he would have committed and placed himself in exclusivity with an inadequate buyer who had also given him a penalty clause in case he left the negotiations. As such, he would have been caught in a very complicated sale if it went ahead.

The advisors know how to help you get out of unwanted situations. Count on them, trust them and do not let the buyer fool you! On many occasions the buyer wants your advisors to not be there. He tells you that it is better not to talk to them because they make the process difficult. Ignore this suggestion, they are there to help you!

The advisors will create impediments during wrong processes, in order to help you achieve a proper process, and to ultimately protect your interests during the negotiation of the sale of the company. They know how to manage it because they are experienced and have been part of many operations.

Therefore, it is essential to use advisors who have real experience, who are not intermediaries, who are professionals in finance and corporate operations. Selling a company is a very complex aspect in which there are many elements to monitor and deal with. Do not ever put yourself in the hands of intermediaries, put yourself in the hands of advisers!

If you consider the sale of your company, and neglect the 3 main mistakes in the sales process, you will have to go through different stages to help you maximize the final price. Do you know which ones they are? Download the eBook “HOW TO MAXIMIZE THE PRICE OF YOUR COMPANY” where, in a simple way, we explain how to prepare the company for sale.

DOWNLOAD THE EBOOK

Should I sell when market consolidation occurs?

Sell my business when market consolidation occurs?

The economies of scale that other companies reach through market consolidation can make business owners realize their size is not enough to survive and ask themselves this question: Should I sell my business?

Ask yourself if there is enough business for all the competitors

Are there companies that are disappearing? Is there market consolidation? The growing interdependence of economies across the planet has accelerated cross-border M&A deals, forcing local companies to acquire the sufficient critical mass to compete against global players.

IF YOU ARE INTERESTED IN LEARNING MORE ABOUT CROSS-BORDER M&A, HAVE A LOOK AT “WHY IS THERE SO MUCH CROSS-BORDER M&A”

The entrance of larger, competitive foreign players shrinks margins and at the same time forces local companies to spend more to keep up with their research, development, and innovation capacities. To survive, many companies are forced to merge in order to reduce cost or gain enough market share to create economies of scale.

When should I sell my business

A warning sign for the business executives is when customers start to vertically integrate, buying competitors and consequently buying their products and market share.

We had a client that started to worry when he saw how the big groups of his industry were being acquired by competitors or by private equity companies. He realized that with his own resources, his company would not be able to compete against corporations with more capabilities and decided to sell before it was too late. Fortunately, we were able to ride the consolidation wave and sold the company to an American group that had to put in a high offer in order to win the auction against a Dutch group and various private equity firms.

We have seen many executives and business owners who did not notice, or chose not to notice, the signs of a consolidation in their sector. They failed to take the initiative and proactively join the M&A wave, hoping that out of nowhere the day would come when they would receive an offer. Unfortunately, that day never came, and instead these business owners lost everything.

This sad reality is especially relevant when it comes to family businesses, as 70% of them are not passed on to the next generation. The sale of a company is one of the most important decisions that a businessperson makes in both his or her business and personal lives. It takes courage not to be caught in the sector consolidation trap.

8 negotiation techniques when selling a business

Selling a business: negotiation techniques

Selling your business is no easy task. Here are 8 negotiation techniques you should know in order to maximize its sale value.

First steps when selling a business

1. Prepare the company for the sale.

If you were to sell your house, you would take the time to fix it and make it look as appealing as possible to buyers. The same applies to your company. For example, there are some financial figures that you should improve to make your company look more attractive to investors.

2. Know what it is worth.

You should understand your company’s valuation. You should not share this information with the buyer, but you should understand what the drivers of the value are in order to be prepared for the negotiation.

3. Have alternatives.

Having back-ups is key, and in order to find alternatives, you must look for them. It is not a good idea to sell your company to the first buyer that comes across. You have to create alternatives by looking for those that have the best financial capacity in the business world.

4. Create the right setting.

You need to make sure you create the right setting. The appropriate people must be at the negotiation table. You have to understand the key people and what their interests are because different players may have conflicting interests.

Learn, be ambitious and don’t be the sole decision maker: don’t forget this negotiation techniques

5. Learn as much as you can.

You should try to build a personal relationship with the buyer and measure the situational power. Knowledge is power, so you have to understand what the other person knows about you.

6. Be ambitious.

You should try to be ambitious and throw down the anchor. However, you should be sensible. It should be done in a reasonable way using reasonable arguments. Sometimes, it is not a matter of what you ask but rather how you ask it.

When you negotiate the sale of your business, a useful M&A negotiation strategy is to anchor the negotiation from the top with an aggressive demand. Learn more about it reading “Key for M&A negotiation strategy: Throw down your anchor“.

7. Start the negotiation with the most problematic point.

The tendency is to start the negotiation with the easiest topics and leave the problematic topics for last. However, this is a big mistake. The toughest things should be discussed and sorted out at the beginning of the discussions when both parties are excited about the deal so the issues can be easily ironed out. Whereas, when these items are left for last, when each little wrinkle could be really problematic, the chances of finding common ground become slim to none.

8. Have a team of advisors.

You should always have a team that you can rely on. You should never be the sole decision maker for your party. In negotiations, this will help you give the impression that you are not the whistleblower and that you need to consult issues with your advisors.

If you want to learn more about it, feel free to listen to our new podcast:

Common reasons to sell a business

In this article, Enrique Quemada, ONEtoONE President, tell us the 10 most common reasons why entrepreneurs sell their business. Let’s begin!

Internal and personal common reasons why entrepreneurs sell their business

1. Preparing for retirement: this is a very personal reason to sell a business. There are businessmen who, at 55, decide they have enough money and “have done it all”, they no longer feel the urge to continue fighting and would rather focus on other pastimes, such as travel. Others prefer not to retire until 70. If a businessman is 63 and wants to sell his company and retire in two years, it is always a good idea to start preparing the company for sale.

2. Health problems: you only live once and if your health fails you it may be best to let go of the company so that you can spend the time you have left with your family, without the trouble and demands of your company.

3. Lack of interest in continuing the business on the part of the children or a lack of preparation: the owner must understand and accept that his children want to pursue different paths from him.

4. Conflict of interests between shareholders: one of them doesn’t want to continue or there are disagreements about the correct course for the company. This makes decision-making difficult and compromises the competitive future of the company.

5. Need for a new injection of resources: The need for capital increase in order to stay competitive is very common. It is possible that an owner, especially when he is getting along in life, isn’t willing to reinvest the capital that he has made from the company and prefers to sell.

DOES YOUR COMPANY NEED A NEW INJECTION OF RESOURCES? HAVE A LOOK AT “REACT TO YOUR COMPANY’S NEED FOR CAPITAL BEFORE IT IS TOO LATE“!

External common reasons why entrepreneurs sell their businesses

6. The entry of a powerful competitor into the sector: sometimes a company has developed a market and made it attractive enough for a bigger player to come in as a competitor. This is what happened with Netscape in the browser market when Microsoft appeared. Netscape resisted, and failed.

7. End of an upward economic cycle: the mature businessman faced with a cyclical change decides to sell the company. As a businessman once said to me, “I’m already rich. I don’t need to spend the last years of my life fighting an economic crisis”.

8. You receive a good offer for the company: upon analysis of the offer, it is clear that more value will be obtained accepting the offer than continuing to manage the company. This means that the buyer is paying a price greater than the embedded value and is sharing, as we will later see, the value of synergies or, simply, overvaluing it.

9. Changes in sector regulations: for example, new phyto-sanitary requirements may mean significant investments that make it impossible to be profitable given the current size of the company. One way to survive and keep the existing value of the current capacity (clients, brand, products, and technology) is to become part of a larger group.

10. Change of business or simultaneous dedication to more profitable companies that require more attention: sometimes you find that another business you started is more profitable, requires less effort, has a brighter future or, simply, brings you more satisfaction.

3 Keys to Maximizing the Price of a Company

MAXIMIZE THE PRICE OF A COMPANY

The sale of a company is one of the most important moments in the life of a business owner. And it is one of those moments where the process must be as professional as possible. There are three keys to maximize the price of a company:

1. Find the most financially able buyer

The first key is selling it to a buyer who truly has the financial capacity for the purchase. Often, you might receive a buyer who has double the revenues you do and has a lot of debt. There might be a lot of interest, but what is likely to happen is that they will not be able to pay a lot because they simply do not have the resources. However, if you find a buyer who has $1 billion in turnover, $100 million in profits, and no debt, that buyer is sure to offer you a better price because the buyer simply has greater financial ability.

2. Look for synergies

The second key is synergies. This means finding the buyer that has the best synergies with your company, in addition to having the financial capacity for the purchase. This implies the buyer being able to sell your products to the same clients, selling your products to their clients, or opening a new market for your company. These are synergies that create value, which will be reflected in the price tag.

YOU MIGHT ALSO BE INTERESTED IN, “4 STEPS TO PREPARING YOUR COMPANY FOR ITS SALE.”

3. Create competition

The last key is creating competition. It does not make any sense to sell your company to the first buyer that comes along. Rather, one should always look for other potential buyers, even though this search may be confidential. It is important that this research is done because otherwise, you will not have any negotiation power and this will be very obvious when it comes down to negotiation the sale price.

Conclusion

Therefore, at a time as crucial as selling your company, it is of vital importance that you find the buyer that has the financial capacity for the purchase, that has true synergies, and that you create competition among potential buyers who fulfill these requirements. Our experience shows us that this doubles the price of the offer during the sale process. Through 30 years of value creation, imagine doubling its value just during the nine months that the sale process usually takes.

This article was written by Enrique Quemada, President of ONEtoONE Corporate Finance.

Key for M&A negotiation strategy: throw down your anchor

When you negotiate the sale of your business, a useful M&A negotiation strategy is to anchor the negotiation from the top with an aggressive demand. When we hear high or low figures, we tend to unconsciously adjust our expectations in the direction of the figure we have heard.

Using anchoring in M&A negotiation strategy has a psychological effect

The anchor has a strong psychological effect and it directs the operation in favor of the person who throws it down. This way, you inevitably condition the other party, who then has to rethink their position.

When an anchor is introduced into a negotiation, the ZOPA (zone of possible agreement) usually turns in its direction. The negotiation turns towards the zone of the person who has thrown down the anchor.

Because of this, many people think you should make the first offer and that first offer should be aggressive. Naturally, this anchor is more effective when we actually have other offers and candidates, because if we end up breaking negotiations with the anchor, we will have other options.

DO YOU WANT TO KNOW MORE ABOUT M&A NEGOTIATION STRATEGY? READ “NEGOTIATION IS YOUR POWER WHEN SELLING A BUSINESS”! YOU WILL LEARN ABOUT HOW TO VERIFY THE POWER OF THE OTHER PARTY, AND ONETOONE NEGOTIATION EXPERIENCE WHEN SELLING A BUSINESS

How to throw down an anchor

By making the first offer, you are risking the breakdown of negotiations, as you might throw down an anchor that is too big. Therefore, when you throw down your anchor, it is best not to be categorical. It is not necessary.

Sometimes, we do not even need to make an offer to throw down an anchor. For example, for the buyer, it can be enough to make affirmations such as “Naturally we have to perform a good due diligence in order to know the company better, but companies belonging to this sector are being sold at 4 times EBITDA, which is what we are thinking of.” Even if it is not a good offer, this offer has the effect of an anchor because it hinders the seller’s expectations.

Also, launching the first anchor softly can stop/delay the other party throwing down anchors on their side. In order for your demand to be believable, you should always back it up with rational arguments that can be discussed. You should support them with standards, references, or precedents that make it credible. You will not offend the other party if you can logically justify your demands with solid arguments.

Why sell a business when legislation changes

In this article, we briefly discuss why sell a business when new legislation changes negatively affect companies’ growth. We will also tell you the story about a client running a business in the chicken farming sector who finally decided to sell his company because of these changes. Let’s go!

Legislation changes could affect your business

It is common for new laws to cause a lot of stress for companies. In many cases, business owners can foresee the change coming because they are also operating in other countries that have already gone through a similar process. That is why they can take the initiative and sell before this causes a crisis.

Other times, a regulatory change requiring a strong investment creates a need for external capital because the internal cash flow generation is not enough. For example, new regulation might require important investment that the business cannot afford because of its size or growth path.

This situation happened to us with a client in the chicken farming sector. A new animal protection legislation required an increase in the standard of living of the hens, which meant important capital requirements. Our client was not willing to risk his own capital for the needed investments and was afraid of asking for debt, fearing the free cash flow produced by his business would not be able to pay it. After we analyzed and discussed the alternatives, the client decided to sell. We had a Dutch group and an Italian group bidding against one another. It was the Dutch group who eventually won the bid for the company.

THE NEED FOR AN INCREASE IN CAPITAL TO STAY COMPETITIVE IS VERY COMMON. DO YOU WANT TO LEARN MORE ABOUT IT? HAVE A LOOK AT “REACT TO YOUR COMPANY’S NEED FOR CAPITAL BEFORE IT IS TOO LATE!”, YOU WILL FIND AN INTERESTING STORY ABOUT A CLIENT WORKING IN THE MANUFACTURING OF MACHINERY FOR FOOD PRESERVATION.

Do not wait until it is too late

One way to survive and maintain the value of the assets (clients, brand, products, technology, etc.) is to merge into a larger group. Many business owners wait until it is too late. They do not want to recognize how critical the change is.

If you want your company to survive when there is a critical change in your business environment, react with urgency because the finding of a good buyer and all the negotiation process will take time.

This article was written by Enrique Quemada, ONEtoONE President.

Business onwners' hard decision-making moments

The tough decisions of business owners

Business owners make tough decisions every day: when they must decide between tapping into his home equity line to finance his business or running out of operating capital for a new project; when they have to fire their employees who have become close friends just because sales are down; when they need to make an equity investment to renew the equipment. These are just a few examples of the tough decisions that business owners make every day. Learn more by reading this article written by Enrique Quemada, ONEtoONE President.

When you absolutely need to invest

Here is an interesting story. A client was having trouble convincing his wife that they should reinvest some of their savings into renewing their printing equipment because their competitors had all upgraded. Without this investment, the company was destined to disappear. She did not understand why he wanted to risk their savings so close to retirement, but then she, too, realized that the company would die otherwise. He had spent all his life building his company and could not bear seeing it plummet. ONEtoONE was hired to secure the capital that banks did not want to provide, and we found a strategic investor from Italy.

Problems and decisions that business owners face everyday are overwhelming, and they are the only ones who know about them, their significance, and potential consequences. If you are an entrepreneur, you know it: your family thinks you are self-centered and feels neglected. You are constantly unable to attend family events, and your spouse and kids think they are a second priority. You do not want to worry them, so you prefer not to share your business problems with them. That is why they do not know you are under pressure and your decisions could potentially ruin all that you have built.

How to enjoy life again

A friend of mine could not manage the situation, and as a consequence, his marriage was destroyed. He could not understand what was happening, and when he realized it, it was too late. The divorce was hard, and his wife took everything but the company. The pressure was tremendous, and the loneliness made it even worse. Then, the company started to suffer because of the situation, so he came to us looking for advice. His industry was growing, and we looked for a potential buyer. We found a Canadian buyer who bought the company and offered him a C level position to run a new division. Selling his business gave him the peace of mind he desperately needed, and the opportunity of being involved in a new project helped him to enjoy life again.

You do not need to go through this dilemma forever. There is an amazing M&A wave today. Prices of public companies are at the highest they have been, and liquidity is abundant. If you are tired of the hardships and the loneliness that comes with being a business owner, 2018 is the time to sell.

PREPARING YOUR COMPANY FOR ITS SALE

Creating a to-do list for preparing your company before selling it can help you create an action plan before putting it on the market. When the time comes to sell your company, you have two options. You can begin the process immediately, putting it up for sale in its current state, which may mean lowering its value to potential buyers in the negotiation stage. Or, you can delay its sale until you have invested enough time to improve the way in which potential buyers see your company. This choice depends on personal motivations as well as the other objectives of the business owner.

If you choose the second option, here are the four basic steps to follow before the sale:

1.Obtain a valuation.

Surely you have an approximate value for your company in your head, but is it reliable? Getting help from professionals who are experts in this area can provide you with a figure that is objective and realistic for your company in the current market. A value analyst can also aid you in determining what the strengths and weaknesses of your company are and, thus, come up with strategies to increase its value.

2.Reduce dependency on the owner.

You believe that your business cannot function without you and your employees. By reducing this dependency, you increase its value for the buyer. In order to achieve this, it is important to plan the sale with time and patience to find the right people to put your trust in and delegate your responsibilities.

YOU MIGHT ALSO BE INTERESTED IN, “BEFORE ACCEPTING AN OFFER, STUDY THE BUYER.”

3.While strengthening your company to present it to buyers, keep your sale plans as private as possible.

Share your intentions to sell with only key personnel and external consultants only when necessary or when information is accompanied by a confidentiality agreement. Always emphasize the importance of maintaining the privacy of your sale intentions. If news that you are planning to sell your company arises, you run the risk of creating uncertainly among your employees, clients, and suppliers. This could decrease the company’s value, just when you need it to increase.

4.Develop a memorandum of sale.

Your company should be described in an easy and concise manner. When you have a memorandum of sale (also known as information memorandum) for your company, you increase the trust of the buyer and reduce diligence problems, making the way for a simpler and faster sale. This memorandum of sale should include the history of the company, industry information, a description of the company’s operations, its strengths, market strategy, and prediction for the future. The financial position and financial and operating tendencies could also be included.

At ONEtoONE, we understand that, in respect to a corporate operation, the valuation is a negotiation tool. The creation of a value report is a fundamental part of a successful negotiation to be able to maximize the price with arguments backed with concrete and accurate numbers.

This article was written by Enrique Quemada, President of ONEtoONE Corporate Finance.

Why is there so much cross-border M&A

The trend of increasing cross-border M&A has accelerated with the globalization of the world economy.

Growing interdependence and the entrance of foreign players as cross-border M&A causes

The growing interdependence between worldwide economies has increased corporate transactions between countries. Companies need to acquire enough critical mass to be able to compete against global players.

The entrance of larger, competitive foreign players shrink margins and at the same time force local companies to spend more to keep up with their research, development and innovation capacities. To survive, many companies are forced to merge in order to reduce cost or gain enough market share to create economies of scale.

DO YOU WANT TO KNOW MORE ABOUT HOW TO DEAL WITH MARGINS THAT ARE GETTING STRETCHED? HAVE A LOOK AT “IF YOUR PROFITABILITY IS DECREASING, REACT BEFORE IT´S TOO LATE“

Having to deal with foreign companies that are more competitive in terms of cost, size, research capacity, development or innovation, means that many companies need to look for ways to reduce costs via productive synergies with similar companies or obtain a sufficient market share in order to produce economies of scale.

Cross-border M&A and sell-side operations

The good news for sellers is that strategic acquirer are willing to pay a premium in a cross border transaction. Also, in a cross border deal, the buyer is usually willing to respect the management team of the target company.

When analyzing who might be the best buyer for your company, the key is discovering which company is the one that can obtain the most value by acquiring your company and, as such, can share more of this value with you by paying the most.

Remember that the best buyers aren’t looking for you. You are the one who needs to find them and woo them.

A big percentage of the success of a sell side operation depends on the search of the best potential buyers worldwide and reaching out to the key people in those organizations, always with confidentiality throughout the entire process.

DO YOU WANT TO LEARN MORE ABOUT SELL-SIDE OPERATIONS? GO TO SELL-SIDE SECTION AND DISCOVER HOW TO SELL YOUR COMPANY!

This article was written by Enrique Quemada, ONEtoONE President.