Tag Archives: Selling your business

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:

10 most common reasons to sell a business

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.

Why sell a business when legislation changes come

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.

4 STEPS TO PREPARING YOUR COMPANY FOR ITS SALE

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.

Study your buyer

BEFORE ACCEPTING AN OFFER, STUDY THE BUYER

Many business executives wait for a buyer to show up someday, never stopping to think about the flawed logic of accepting an offer and selling the company to whoever gets there first. Is this the best buyer? Is this the one who can pay the most? It will be a remarkable coincidence if it is. It is much more likely that it is not. Also, since they are the only buyers, their bargaining power is far superior to yours.

The importance of research

If you want to maximize sale value, you, or the advisors you hire, must go through a rigorous process of finding the best buyers or investors. Buyers will be those who have the best synergies with your company, who are the strongest financially and who recognize the strategy—the value of your company (wherever they are). Then, you will have to make them compete to increase the price.

YOU MAY ALSO BE INTERESTED IN, “NEGOTIATION IS YOUR POWER WHEN SELLING A BUSINESS”.

Price is not one-dimensional

Price is an essential aspect of any negotiation, but the likelihood of closing the deal also lies in who we give exclusivity to for due diligence. We may receive an excellent offer from someone who has little hope of obtaining financing or who is known to negotiate hard at the final stage after due diligence.

Therefore, before accepting an offer, it is good to study the buyer’s actual financial capacity and acquisition history. By studying how he has performed in previous acquisitions, you will learn a lot about his behaviour. Once you grant exclusivity to a buyer and tell other potential buyers that you have accepted another offer, it will be more challenging to go back to them and get them interested again.

Enrique Quemada, president of ONEtoONE Corporate Finance, has written this article.

YOU MAY ALSO BE INTERESTED IN, “WHAT SKYDIVING AND SELLING YOUR COMPANY HAVE IN COMMON”.

Everybody is selling their business - and you?

Everybody is selling their business!

The M&A wave is rampant. Never have prices been as high as today. Never has there been so much liquidity in the system. Never have interest rates been so low, so never has it been this easy to borrow money. Hence, we could say everybody is taking the chance of selling their business.

The M&A wave of today

At the same time, the fate of individual companies has never been more uncertain, and the window of opportunity is closing for many companies unprepared or unable to adapt to the new market realities.

The current technological revolution is defining the fate of many companies: Unmet customer expectations are resulting in churn; the lack of digital transformation gains is translating into loss of market share; industry lines that protected some are crumbling; the longstanding, durable business models are failing.

In life, change is unavoidable, but in business it is vital. When the speed of change outside your company is greater than the speed of change within it, the end is just a question of time. Today, new business models are emerging, which are allowing the revolution of sectors.

When to sell your business

It is very common that business executives do not want to sell their company when it is making the most profit and will when it is going through a crisis. This is a clear mistake. For those who have taken the risk of entering the entrepreneurial world, selecting the right moment to exit is one of the most important and delicate moments in the life of a company and, hence, where there is the greatest need to act the most professionally.

Today, money is abundant. The value of companies in the stock market have never been higher, interest rates worldwide are at the lowest levels ever seen, and there is a huge M&A wave. Ride the wave before it goes and you regret it.

This article was written by Enrique Quemada – President of ONEtoONE. Book: How to Maximize the price of my company

Your might also be interested in “WHAT SKYDIVING AND SELLING YOUR COMPANY HAVE IN COMMON”.

Negotiation is your power when selling a business

Negotiation is power when selling a business

Power is very relative. When selling a business, during a negotiation this power will depend on your alternatives and the alternatives of the other party. Don’t forget that emotions are more than 50% of a negotiation.

Verify the power of the other party, it is normally overestimated

In a negotiation, perceptions are crucial. It’s fundamental that you understand the other party’s perceptions and that you keep them in mind. Once you know your interests and your limits do the same with the other party. A negotiation is a game of information and information gives you power. Try to understand your needs instead of your wishes.

There are many ways to discover the other party’s interests. Sometimes, it surprises me to see how little homework business owners do in such an important situation. If the buyer has acquired other companies, you should analyze how those deals were, in what conditions he bought, the multiples he paid and why he was interested in the company. All this information is worth a lot, so if you don’t have time to find it all out you should subcontract someone.

ONEtoONE negotiation experience when selling a business

Some years ago, we had a sale mandate for a French company. They had an offer from a big private equity firm that was doing a buildup (concentrating a sector via acquisitions) of its sector. Our client had already verbally negotiated with them for a price of 20 million Dollars, but they didn’t know how to continue with the process, so they asked for our help. We asked him for permission to reopen negotiations and he agreed. The first thing we did was to study all the deals the buyer had done in other countries and the multiples he had paid. We also studied how much money the private equity firm had for the consolidation project, they had spoken about it to the press. When we began negotiations, we already knew how much they would be willing to pay and what role our client’s company played in the consolidation process. We even thought we knew how the announcement of the transaction would affect its price in the Stock Market. All of this let us increase the asking price to 42 million Dollars. As we were flying back, the buyer rang our client and told him we had been very hard in the negotiation and asked him to agree the price of 40 million Dollars. Our client accepted the offer and we didn’t have the strength to go back for the 42 million!

This experience taught us that business owners have to be very careful with any concessions they give. If you have professional advisors working on the negotiation for you then don’t make any “spontaneous” interventions unless agreed upon and prepared in advance. Naturally, you have more power when you have alternative options, so before giving exclusivity you should clarify all the important aspects of the agreement. Once you give exclusivity and start negotiating with one sole buyer, you will have less negotiating power and the ‘power’ will be on the other side.

The person who is most comfortable with the current situation has the most situational power; the person who needs more change will have less power. The key to understanding who has the most power or leverage in every moment is to analyze which party has the most to lose in this moment if there is no agreement. The person who has the most to lose has less situational power. Your mission is to manage the situation so that your counterparty has more to lose than you.

The situational power

There’s a point in which you have more situational power: it’s when the other party makes an offer and you don’t accept, it’s the moment in which you have the strength to improve the negotiation, you have the most leverage.

I recommend that every time you receive an offer you act alarmed, as if it seems low to you. This will mean that the other party will give in a bit if he can or he remains satisfied with what he’s got if he can’t give in.

Always remember that situational power is based on perceptions, not on facts. You have leverage if the other party thinks you do, if he thinks you have a strong position then you have it. Therefore, be careful with what signals you give off.

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

This article was written by Enrique Quemada – ONEtoONE President

Your might also be interested in “WHAT SKYDIVING AND SELLING YOUR COMPANY HAVE IN COMMON”.

Why you need a professional for selling your company

What skydiving and selling your company have in common

In this article, written by Jeroen Maudens (ONEtoONE Partner in Belgium), we will discover that selling your company has something in common with skydiving. As in skydiving, to sell your company you need someone to team up with, a guide, a professional, an advisor. The jump is yours. The decision is yours. The company is yours. The guidance is not.

Selling your company and the skydiving metaphor

Skydiving is crazy stuff, we all agree on that one, don’t we? It is not natural to us. Most people think about it for months or years before they actually take action and book D-Day in their calendars. Before committing we make sure to get the right place to jump (I had mine in SPA, Belgium) with the best instructors and, preferably, a record of low to zero accidents! Bizarre, skydiving is not rocket science. You just go to the airport, check the parachute, do the safety drill, read the instructions, suit up, board a plane and jump out. Voila, done, piece of cake!

Yet nobody does this on their first attempt, we all go tandem. We all wish to be in the safe hands of a professional instructor. Someone that has done it many times before and still goes home every evening in full health. Why? Because you would risk not pulling the string up there? No. You would end up in a rollercoaster of emotions and pull the string too soon… or too late? Due to the sensation you might forget how to carefully navigate towards the dedicated landing spot or use the wrong technique in landing, since it is your first time and risk breaking a leg doing so. In the worst-case scenario, you end up paralysed or even death.

The most probable scenario though, is that you will not jump at all. You will back out at the exact moment when the door opens, and you see 4,000 meters of air and clouds between yourself and planet earth. On the moment of truth, you will step back, tell yourself it is not worth risking your life and keep on wondering your whole life how it would have been to have jumped, to have done it. You will hear about the amazing sensation of freedom, and you will never have experienced it yourself.

How does skydiving relate to selling your company?

Selling your company is a once in a lifetime operation for most people. Yet many try to do it all by themselves. It is the financial operation of a lifetime, the fruit of years of hard labour and sometimes financial struggle, hard decisions and risky investments.

Just because you know your company best, you might think that the best salesman for your company is… you. Wrong! You might learn how to prepare, valuate and market a company. Many books describe what a structured auction should look like and you can find templates for NDA’s, non-binding offers, binding offers, LOI’s and SPA’s all over the internet.

The lowest price is not always the best deal.

One thing though you do not have: The experience of the right mix in timing, nuances, finesse, experience and contacts to create the upside you deserve in your once in a lifetime operation. You need someone alongside you that manages the process and guides you through negotiations when emotion takes control of you. You need somebody to give you that push when you feel like backing out last minute because of fear of the unknown. You need an expert in selling companies, not a manual on how to sell your company. You need someone to team up with, a coach, a guide, a professional, an advisor, a friend. The jump is yours. The decision is yours. The company is yours. The guidance is not. Do not jump alone, get help.

 

If you are interested in learning more about selling a company, take a look at SELLING YOUR COMPANY AND THE IRREPLACEABILITY PARADOX.

When you lie selling your business

Every buyer needs to know a company’s real situation via an auditing process and it is vital that this process covers the financial aspects as well as the legal aspects, labor aspects, etc.

We are talking about the due diligence process that any sensible person will complete before buying a company.

Traditionally, due diligence is done by the buyer once his conditional offer has been accepted. It usually takes between 4 to 8 weeks.

If you lie, it will be discovered during the due diligence and the deal will fall apart.

We had a sell-side mandate from a publicity company and our client told us that he had contracts signed with all his clients. This was reflected in the information memorandum that was presented to the foreign buyer. When the buyer completed the due diligence they discovered that there were no such contracts, resulting in a lack of trust on the behalf of the buyer and they lowered his offer. Our client tried to explain that it was not customary to sign contracts, they were verbal contracts that were renovated every year and the proof was that the clients had been with him for many years.

What might not be relevant if explained from the very beginning can become relevant if the information passed on isn’t exactly true, causing mistrust on the side of the buyer.
The results of the due diligence can be an important tool for verifying if the offered price is adequate and the buyer often uses the results as a negotiating tool for price and contract terms.

Sometimes, the seller isn’t aware of his own problems until the buyer discovers them in the due diligence.

Once, we advised a multinational and made an offer to buy a company. The seller claimed to have no debt and a price was agreed on this basis. However, due diligence showed that the company had, in fact, received reverse factoring of 4 million dollars, which meant bank financing. In other words, the company was in debt. The CFO insisted that it was not debt and that it had to be proved to be debt. By that point, the seller already had an amount in mind and any lowering in price, as he saw it, would ruin the transaction. Both parties were unaware of this problem and were also set on a price that was now impossible. In short, there was no reduction, just a misunderstanding or, in this case, maybe a concealment of the truth.

As he will be spending money, the buyer usually asks for exclusivity during this period and it is normal for the other party to agree. The seller maintains negotiations with only one buyer, running the risk of losing all other potential bidders. Therefore, never lie to a potential buyer, you will only be damaging yourself.

@EnriqueQuemada

Book: How to Maximize the price of my company