Mergers and Acquisitions For Dummies (10 page)

Chapter 2

Get ting Ready to Buy or Sell a Company

In This Chapter

Knowing why companies often sell or buy other companies

Preparing your company to engage in M&A

O
n Seller's side, the conversation begins with any one of numerous comments: “I think it's time to retire,” or “I've taken this company as far as I can take it,” or maybe even, “This company is about to crater; I want to get out.”

On Buyer's side, the conversation also begins with any one of numerous comments, but comments of a slightly different variety: “Organic growth isn't enough. We need to consider growth through acquisitions,” or “I think buying that product line might be easier and less expensive than building one from scratch,” or maybe even, “Those guys are killing us; let's see if we can buy them out.”

These conversations are often held with advisors — lawyers, accountants, wealth managers — or other executives. Most often, a set of questions follows: “How do we do this?”, “What's the first step?”, and finally, “Do you know anyone who can help us?”

The decision to sell a business or to make an acquisition is often confusing, frustrating, time consuming, and expensive. But never fear; in this chapter, I break down the early considerations for selling or buying a company so that they feel less intimidating.

Considering Common Reasons to Sell

Many people, including many business owners, think the cash flow from a business is the only source of wealth creation. They overlook the (quite often stunning) wealth that company ownership can create. This section explores the reasons an owner may want to sell his business.

Trying to
time the market —
that is to say, trying to set
your transaction to close when the economy is roaring — rarely works. Instead of trying to guess when Buyers are going to pay high prices, Sellers should focus on running the business, increasing sales, controlling costs, and improving profits. The best time to sell a company is at the intersection of salability and the need/want to sell the business and not necessarily when the market is booming.

Retirement

Retirement is one of the top reasons business owners decide to sell their businesses. The older some people get, the more they hear the siren call of Florida or Arizona. Or the Carolinas. Or . . . well, any place that doesn't involve work sounds enticing. When an owner is considering moving on to the next phase of life, that phase of life often is fueled by the proceeds from selling his business.

So the question then becomes, “How do I know when it's time to retire?” Here are some typical issues business owners consider when deciding whether to head off into the sunset:

Family:
Where are the kids? At home? In college? On their own? Are you still supporting them, or are they financially independent?

Lifestyle:
What do you want to do? Get involved with charities? Golf? Boat? Travel? Spend time with the grandkids? How much vacation time are you taking each year? If you're spending increasing amounts of time away from the business and the business can operate without you (a good thing if you want to sell it), retirement time may be nigh.

Finances:
Do you have enough saved to fund the lifestyle you want? Have you actually figured out that number with a professional planner, or are you just guessing?

As far as funding retirement, business owners usually have a rough, back-of-the-envelope number in their heads. Many times, that number is little more than a guess, and that guess often is a gross overstatement of what the owner really needs to fund his retirement. Sit down with a qualified wealth manager and talk about exactly what you want to do in retirement. That wealth manager should be able to determine what you'll need to retire and live exactly as you want to live.

Your personal drive:
Be honest: How's your energy and drive? Yeah, I know, that sounds like one of those pharmaceutical commercials, but in all seriousness, are you still the go-getter who originally built the business? Admitting that your drive isn't what it once was and that you're putting aside your ego to think about what's best for the business and your employees is no cause for shame.

If your position is no longer necessary to support the family, you have enough to retire, your lifestyle interests are increasingly outside the confines of work, and you've simply lost your mojo and desire for work, perhaps you're ready to think about selling the business and retiring.

Buyer, you can ask a reluctant Seller if she has planned her retirement with a qualified professional. Getting an owner to create a concrete retirement plan with an advisor can be a way to bridge a valuation gap (see Chapters 12 and 21 for more on valuation and bridging valuation gaps).

Let someone else take the company to the next level

Some owners choose to sell because they've determined that they've taken the business as far as they can take it. They may not want to retire, but they also may not want to run the same company anymore. This situation happens for a few reasons: