It takes a team to sell a business. The sooner that an owner understands and accepts the need for a team, the more likely the sale process will be successful. However, it can be one thing to realize that a team needs to be assembled, and quite another to understand how to go about assembling the team. The most important point in this regard is that selling a business is a specialized activity requiring unique skills and understanding in order to be done well. Accordingly, as with other specialized activities, there is a premium on assembling a team of professionals who are experienced in the process of selling businesses.
A standard team for selling a business (including in the middle and lower-middle markets) will include the following members:
Investment Bankers. Every owner who wants to sell a business, or is deciding whether to sell a business, should thoughtfully consider engaging an investment banker to be part of the team and help with the process. We addressed this topic in our 31 May 2017 Business Planning Alert. Our view is that an appropriate investment banker is invaluable in most every instance.
Accountants. The team needs to include accountants, both financial and tax, who are experienced in selling businesses. The financial and tax accounting issues that arise in connection with selling a business are different than the financial and tax accounting issues that arise in connection with periodic compliance matters. Often times the accountants who have historically handled the periodic compliance matters for a business will also have appropriate experience selling businesses, which is great. However, sometimes they do not, in which case it is important to bring in accountants with the appropriate experience selling businesses.
QOE Advisors. It can be important for the team to include advisors who have experience preparing “quality of earnings” (“QOE”) studies/reports, which these days are required by most sophisticated investors/buyers (and often their lenders), in order to anticipate and address issues that may arise in connection with the buyer’s financial due diligence process. We addressed the topic of preparing financially for the sale of a business in our 25 September 2017 Business Planning Alert. Appropriate QOE advisors often are available from the company’s accounting firm, but can come from independent consulting arrangements as well.
Insurance Advisors. The team should include a knowledgeable insurance agent, who hopefully is (but does not need to be) the legacy insurance agent for the business. It is important to review the nature and extent of insurance arrangements applicable to the business, and the availability and need for any “tail” insurance to protect the owner and other sellers from claims that arise after the closing of any sale transaction. It also can be helpful to include an advisor who works with Representation and Warranty insurance as part of the team in order to evaluate and/or prepare for the use of such insurance in any sale transaction.
IT Advisors. Cyber security and related matters are at the forefront of transactions. Accordingly, it is important to include knowledgeable information technology advisors on the team to review the condition of the company from an information technology and cyber security standpoint on a pro-active basis so that issues can be identified and addressed ahead of buyer due diligence. Additionally, early involvement of such advisors on the team can be key to facilitating effective integration following the closing of a transaction.
Experienced Legal Counsel. Finally, the team needs to include lawyers who are experienced in selling businesses in order to help ensure that the process is successful for the owner (even if the process does not result in a sale of the business). Such lawyers can either take the lead in negotiations, or support general counsel (whether inside or outside the business) who have the lead. However, without such lawyers on the team, the risk is high that the owner’s interests will not be adequately addressed and/or protected. Our view is that such lawyers should be brought into the process as early as possible, including in connection with preparing and entering into confidentiality agreements (which we addressed in our 27 March 2017 Business Planning Alert).
Depending on the circumstances associated with a business, the team may need to include a variety of other members (including, for example, environmental consultants, estate and financial planning advisors, and perhaps advisors in other jurisdictions or countries). The most important thing is to proactively identify and pull together the appropriate members of the team as early as possible in order give the sale process as much chance as possible to be successful for the owner.