| Selling your information technology
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| | when the work gets out that your company
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| business is the most important
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| | is for sale.6. Poor Contracts - Here we
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| transaction you will ever make. Mistakes
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| | mean the day-to-day contracts that are in
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| in this process can greatly erode your
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| | place with employees, customers,
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| transaction proceeds. Do not spend twenty
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| | contractors, and suppliers. Do your
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| years of your toil and skill building
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| | employees have non-competes, for example?
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| your business like a pro only to exit
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| | If your company has intellectual
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| like an amateur. Below are ten common
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| | property, do you have very clear
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| mistakes to avoid:1. Selling because of
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| | ownership rights defined in your employee
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| an unsolicited offer to buy - One of the
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| | and contractor agreements. If not, you
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| most common reasons owners tell us they
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| | could be looking at meaningful escrow
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| sold their business was they got an offer
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| | holdbacks post closing. Are your customer
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| from a competitor or more often these
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| | agreements assignable without consent?
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| days, an Indian company looking to buy a
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| | If they are not, customers could cancel
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| customer base in the United States. If
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| | post transaction. Your buyer will make
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| you previously were not considering this
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| | you pay for this one way or another. If
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| business sale, you probably have not
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| | you are tempted to sign that big deal at
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| taken some important personal and
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| | bargain rates to pump up your business
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| business steps to exit on your terms. The
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| | selling price, think again. Locking in a
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| business may have some easily correctable
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| | contract at below market rates could
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| issues that could detract from its value.
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| | actually cause a discount to your selling
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| You may not have prepared for an
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| | price.7. Bad employee behavior - You need
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| identity and lifestyle to replace the
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| | to make sure you have agreements in place
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| void caused by the separation from your
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| | so that employees cannot hold you hostage
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| company. If you are prepared, you are
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| | on a pending transaction. Key employees
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| more likely to exit on your own
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| | are key to transaction value. If you
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| terms.2. Poor books and records -
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| | suspect there are issues, you may want to
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| Business owners wear many hats. Sometimes
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| | implement stay on bonuses. If you have a
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| they become so focused on the next
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| | bad actor, firing him or her during a
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| version release that they are lax in
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| | transaction could cause issues. You may
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| financial record keeping. A buyer is
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| | want to be pre-emptive with your buyer
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| going to do a comprehensive look into
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| | and minimize any damage your employee
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| your financial records. If they are done
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| | might cause.8. No understanding of your
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| poorly, the buyer loses confidence in
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| | company's value - Business valuations are
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| what he is buying and his perception of
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| | complex. A good business broker or M & A
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| risk increases. If he finds some negative
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| | advisor that has experience in your
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| surprises late in the process, the
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| | industry is your best bet. Business
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| purchase price adjustments can be harsh.
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| | valuation firms are great for business
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| The transaction value is often attacked
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| | valuations for gift and estate tax
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| well beyond the economic impact of the
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| | situations, divorce, etc. They tend to
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| surprise. Get a good accountant to do
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| | be very conservative and their results
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| your books.3. Going it alone - The
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| | could vary significantly from your
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| business owner may be the foremost expert
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| | results from three strategic buyers in a
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| in GUI interfaces, but it is likely that
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| | battle to acquire your firm. Where a
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| his business sale will be a once in a
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| | services business may sell for between
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| lifetime occurrence. Mistakes at this
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| | 75% and 100% of last years sales, for
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| juncture have a huge impact. It is
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| | example, technology companies are all
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| especially critical to have a good M&A
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| | over the map. One of our clients had a
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| advisor if you are selling an information
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| | coveted piece of software technology and
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| technology company because these
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| | was able to get 8 X last years sales as
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| companies do not fit traditional company
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| | his purchase price. We certainly could
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| valuation metrics. If an owner does not
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| | not have and would not have predicted
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| get the right representation and have
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| | that at the start of the engagement, but
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| several qualified buyers that covet his
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| | what a nice surprise. When it comes to
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| technology, he possibly can leave a lot
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| | selling your company, let the competitive
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| of money on the table. Selling a
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| | market provide a value.9. Getting into an
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| technology company is complex. Is it a
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| | auction of one - This is a silly visual,
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| better deal to structure some of the
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| | but imagine a big auction hall at
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| transaction value as an earn out based on
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| | Sotheby's occupied by an auctioneer and
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| post acquisition sales performance?Do you
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| | one guy with an auction paddle. "Do I
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| understand the difference in after tax
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| | hear $5 million? Anybody $5.5 million?'
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| proceeds between an asset sale and a
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| | The guy is sitting on his paddle. Pretty
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| stock sale? Your everyday bookkeeper may
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| | silly, right? And yet we hear countless
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| not, but a tax accountant surely does. Is
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| | stories about a competitor coming in with
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| your business attorney familiar with
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| | an unsolicited offer and after a little
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| business sales legal work? Would he
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| | light negotiating the owner sells.
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| advise you properly on Reps and
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| | Another common story is the owner tells
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| Warranties that will be in the purchase
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| | his banker, lawyer, or accountant that he
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| agreement? Your buyer's team will have
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| | is considering selling. His well-meaning
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| this experience. Your team should match
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| | professional says, "I have another
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| that experience of it will cost you way
| |
| | client that is in your business. I will
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| more than their fees.4. Skeletons in the
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| | introduce you." The next thing you know
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| closet - If your company has any, the due
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| | the business is sold. Believe me, these
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| diligence process will surely reveal
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| | folks are buying you business at a big
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| them. One of the key issues in
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| | discount. That's not silly at
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| information technology companies is the
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| | all!10. Giving away value in negotiations
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| clear title to intellectual property. Are
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| | and due diligence - When selling your
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| your employee agreements well written? If
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| | business, your objective is to get the
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| you hired outside programmers, was their
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| | best terms and conditions. I know this is
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| agreement specific in ownership of their
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| | a shocker, but the buyer is trying to pay
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| output? The concern of the buyer is that
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| | as little as possible and he is trying to
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| once it becomes public that the deep
| |
| | get contractual terms favorable to him.
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| pockets company is owner, previous
| |
| | These goals are not compatible with
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| disgruntled employees or contractors may
| |
| | yours. The buyer is going to fight hard
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| resurface looking to bring legal
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| | on issues like total price, cash at
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| action.Before your firm is turned inside
| |
| | close, earn outs, seller notes, reps and
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| out and the buyer spends thousands in
| |
| | warranties, escrow and holdbacks, post
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| this process and before the other
| |
| | closing adjustments, etc. If you get into
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| interested buyers are put on hold -
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| | a meet in the middle compromise
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| reveal that problem up-front. We sold a
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| | negotiation, before you know it, your Big
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| company that had an outstanding CFO. In
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| | Mac is a Junior Cheeseburger.Due
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| the first meeting with us, he told us of
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| | diligence has a dual purpose. The first
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| his company's under funded pension
| |
| | is obviously to insure that the buyer
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| liability. We were able to bring the
| |
| | knows exactly what he is paying for. The
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| appropriate legal and actuarial resources
| |
| | second is to attack transaction value
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| to the table and give the buyer and his
| |
| | with adjustments. Of course this happens
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| advisors plenty of notice to get their
| |
| | after their LOI has sent the other
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| arms around the issue. If this had come
| |
| | bidders away for 30 to 60 days of
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| up late in the process, the buyer might
| |
| | exclusivity. If you don't have a good
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| have blown up the deal or attacked
| |
| | team of advisors, this can get
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| transaction value for an amount far in
| |
| | expensiveAs my dad used to say, there is
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| excess of the potential
| |
| | no replacement for experience. Another
|
| liability.5. Letting the word out -
| |
| | saying is that when a man with money and
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| Confidentiality in the business sale
| |
| | no experience meets a man with
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| process is crucial. If your competitors
| |
| | experience, the man with the experience
|
| find out, they can cause a lot of damage
| |
| | walks away with the money and the man
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| to your customers and prospects. It can
| |
| | with the money walks away with some
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| be a big drain on employee morale and
| |
| | experience. Keep this in mind when
|
| productivity. What if your head of
| |
| | contemplating the sale of your business.
|
| systems development gets skittish and
| |
| | It will likely be your first and only
|
| entertains offers from other companies
| |
| | experience. Avoid these mistakes and make
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| and leaves while you are selling? The
| |
| | that experience a profitable one.Dave
|
| buyer wants your top people and they
| |
| | Kauppi is a business broker and President
|
| represent a significant portion of your
| |
| | of MidMarket Capital. We help business
|
| future transaction value. If word you are
| |
| | owners with all aspects of Mergers and
|
| for sale gets out, your suppliers and
| |
| | Acquisitions.
|
| bankers get nervous. Nothing good happens
| |
| |
|
