Final Part- 11 Deal Making Lessons Learned By an Investment Banker

deal making Latin Business Today
During negotiations entrepreneurs need to have a plan and stick to it 

 

Part 3 of 3: leadership characteristics that can lead to great business success

Part 1 Lessons one to five here,  Part 2 Lessons six and seven here

I remind you that I began these series of articles after I was asked the question, “What makes a great deal maker?” In this article I address issues of basic business principles that are so often neglected in the heat of once in a lifetime transaction of selling a business or raising capital. Selling a business or raising capital is not dissimilar to a professional sports team arriving at their Superbowl, World Series or Championship game. To arrive at the big game, the owners, managers, coaches and players must have successfully executed, as a team, the fundamentals of their strategic plan over an entire season.

 

8.  Prioritize Objectives - ”Begin with the End in Mind” - Steven Covey

One of the tricky challenges for many business owners involves carefully considering all of their objectives.

As expected, most sellers focus on maximizing their selling price. But a fixation on a singular selling price can be costly if it is at the expense of considering other more qualitative objectives including:

1) protecting key employees (remember employment contracts)

2) maximizing after tax proceeds

3) composition of purchase price (debt, notes, earnout, rollover equity

4) reducing future liability (those reps, warrantees and escrows)

5) life after closing (retaining an equity ownership stake, earn-outs and non-competes)

6) protecting confidentiality during the process. To close a successful transaction, entrepreneurs need to balance a complex and often contradictory set of objectives. It is important to work with advisors to plan an executable strategy with clarity around your key priorities.

During negotiations remind yourself that you don’t need to win every negotiating issue, just the important ones.

 

 

9.  Practice & Planning - “Fortune favors the Prepared Mind”- Louis Pasteur

Be one step ahead of the purchaser. Companies don’t think twice about a year-long product roll out, while their preparation for raising capital is often done at one meeting with their management team.

Years ago we represented a selling company that was owned 50:50 by each of the two founders. One owner did some careful estate planning before the transaction and the other didn’t. The result was that upon the sale of the company, the planner got to keep almost twice the after tax proceeds than his unprepared partner.

Planning and preparation includes many key steps:

1) review your key contracts from a buyer’s perspective

2) review management and how they will present themselves

3) review your “special sauce” and determine if there are steps to enhance and protect

4) anticipate buyers’ concerns

5) identify barriers of entry for a potential buyer thinking about whether they can use their resources to build your business

6) review your systems and financials with your accountant or independent third party, asking about weaknesses.

Prepare, prepare, prepare: In deal making there is no substitute for preparation. Planning pays.  

 

 

Pages

About the author

Michael Carter

Michael Carter is the founding principal of Carter Morse & Mathias. CMM is an investment banking firm dedicated to working with entrepreneurial companies advising them on M&A and capital raising projects.  CMM’s clients are outstanding privately held companies with valuations typically between $10 and $100 million.  Michael has been on the financial side of business from many perspectives: as a business founder, commercial lender, investment banker, board director, and business advisor.   As a seasoned investment banker, he has advised on over 100 M&A and financing transactions.  Michael has been a board director for several companies and non-for-profits such as Network for Teaching Entrepreneurship, Association for Corporate Growth, Connecticut Chapter and Weston Little League and Weston Sports Commission 

Website