RSM Resources

The total dollar volume of global business acquisitions last yearwas a record $3.79 trillion, beating the previous record of $3.4trillion set in 2000 — and coming in 38 percent higher than in 2005,according to Thomson Financial.

Experts expect acquisitions in 2007 to top those in 2006 by an additional 10 percent to 15 percent, according to The Wall Street Journal.Rising stock prices, low interest rates, a burgeoning debt market andgreater risk tolerance have combined to create a seller’s market.

"It’sstill going like a house afire," says Colin Blaydon, director of theCenter for Private Equity and Entrepreneurship at Dartmouth’s TuckSchool of Business.

Business owners are interested in selling

Ifyou’re contemplating selling your businesses, you’re not alone.According to a September 2006 survey by the University of Dallas Schoolof Management, 80 percent of owners of midsized businesses areconsidering selling their organizations. Of those interested inselling, 75 percent anticipate acting within the next three years.

Whetheryou’re ready to sell or not, chances are a potential buyer has alreadycontacted you. Nearly 82 percent of the business owners surveyed saidthey’d been approached about selling their business. About 30 percentof business owners who’d received inquiries — but decided not to sell —listed factors other than the offer as the reason for delaying. Manycited inopportune timing.

Decide what you want to do next

Determiningwhat you’d do after the transaction is one of the earliest steps totake when contemplating selling your business. Charlene Davidson, asenior managing director with RSM Equico Capital Markets, says businessowners should first determine their goals and objectives for thetransaction. In particular, do you want to preserve a role for yourselfin the business? If so, what would the role be? Or would the sale marka transition in your life, perhaps to retirement or other activities?

Decidingon your post-sale personal goals will also help determine the type ofbuyer you’ll be seeking. Buyers generally fall into two categories:

Financial buyers.Often, private equity investors prefer to play the role of passivepartner, maintaining board-level representation while relying on yourexisting management team to provide active leadership. This option canbe ideal if you’re not ready to retire but are interested in increasingyour liquidity. Some owners are invigorated by the growth opportunitiesthat the investor’s capital and management expertise present. Otherowners feel uncomfortable giving up some control, even though they’dstill be running day-to-day operations.

Strategic buyers.These buyers — typically, direct industry competitors or new entrantsseeking to expand market share — are looking for economies of scale,geographic diversification, new product technologies or otherbusiness-related benefits. Strategic buyers are generally not asflexible as private equity groups when it comes to equity retention,preferring to acquire 100 percent of a company over a partial purchase.Your role is more likely to diminish in a transaction with a strategicbuyer.

Experts say it’s best to approach both types of buyers in your sales process to explore all opportunities.

Stay focused on your business

Afteryou’ve determined what you’d like to get out of the transaction, it’smore important than ever to maintain your focus on running yourbusiness. Adding a professional financial advisor or investment bankerto your management team can help you concentrate on your day-to-dayresponsibilities and prevent distractions from the sales process. Youradvisor can also help you determine the timing of key decisions tomaximize your company’s position in the eyes of a potential buyer.

Duringthe sales process, your advisor can monitor market activity, recommendthe best transaction approach for your company, drive marketing, andhelp you handle potential investors or buyers. The mergers andacquisitions market has become increasingly sophisticated, with moreplayers and capital; it’s important to have someone representing yourbest interests.

In addition, your advisor can walk you throughdiscussions with key suppliers and critical employees. Your advisor canhelp negotiate retention agreements and incentives, and identify backupplans if valued employees decide to leave.

Understand the timeline

Whilesome industry niches are hot, highly specialized companies may takelonger to sell. On average, expect a six- to seven-month process withprofessional representation.

The typical transaction timeline comprises three phases:

Preparation.After determining your goals and objectives, develop a marketingstrategy and create supporting materials. Produce a list of potentialbuyers, both international and within the United States. This phaseusually takes the first 30 days.

Launch. During the next30 to 60 days, initiate your marketing plan and conduct managementpresentations and visits. In the following 30 to 60 days, reviewletters of intent and begin negotiations.

Close. Bothbuyer and seller should conduct due diligence during the last 60 days,after which they complete purchase agreements and final negotiations,and schedule the closing.

Depending on the transactionapproach, the time to close may be shorter or longer. A closednegotiation, in which your financial advisor or investment bankerapproaches five or fewer buyers, may result in a speedier transaction.A targeted solicitation (in which you approach 10 or fewer potentialbuyers) and a controlled sale (with 15 to 20 potential buyers) take amoderate amount of time. A broad auction, with 40 or more prospectiveinvestors, requires the longest transaction time.

Prepare your paperwork

Beforeyou meet buyers and begin entertaining proposals, review possible taxissues and ensure your accounting and financial procedures are inorder. Buyers will want to see accurate cash-flow statements andaccounts-receivable summaries. If you haven’t done so before, this isthe time to invest in audited financial statements.

If youintend to pursue offers from private equity buyers, you’ll also want toassemble a detailed business plan outlining the level and source ofgrowth you anticipate. This plan should address new products andmarkets, how new sources of funding might work, and other informationto add depth to your financial projections.

Last, you’ll need anaccurate valuation of your business. A sound valuation will include areview of tangible and intangible assets, and create a basis forestablishing an asking price. Consider seeking a valuation based onyour company’s investment value, rather than its fair-market value. Theinvestment value will include additional benefits a strategic buyermight receive, such as overhead reduction or strong brand awareness.Look for valuation experts who can use a variety of measurements toarrive at an appropriate price.