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Friday, March 21, 2014

Selling Out

During a period of more than 10 years, as a CEO, Director, and Board Chairman, I have been responsible for disposing of three organizations and have been an acquisition target of two other organizations. I have also been a close observer of several other business sale transactions.

Here's what I learned.

Start Early. From concept to handing over the keys takes about 2 years. Seller or buyer, it takes time to find and qualify good prospects, and it's a process of due diligence, negotiation, and hand-holding until the deal is completed.

Carefully Select Your Help. There is a lot of work to do – some requires the knowledge of your people, other requires outside skill and expertise. Choose professionals wisely – keep away from a fee structure that rewards time spent rather than results achieved. Each deal varies in how long it takes to complete (or IF it completes) so, a term certain contract is not a good choice, especially if requiring a periodic payment even if no work is done.

It's Like Having Two Jobs. Due diligence and sale contract negotiation requires time and concentrated effort – but the organization must continue to operate above normal level during the process. You and your people will be working hard, long hours doing both and neither the sale or operations can be shortchanged – either can put the sale in jeopardy.

It's More Than Just a New Coat of Paint. Preparation for a sale goes beyond just prettying up the organization. Like a comfortable old house, where you know to avoid the third porch step, you will find 'invisible' practices within your organization that must be identified and changed – like a handshake contract continuation – deals have soured over the 'invisibles', don't ignore them.

Dot the i's And Cross the t's. While pulling out all the documents and other materials for the document requests – take the time to logically organize them for the buyer, and review everything for being current and complete. Other useful documents: a current chart of responsibilities (a/k/a institutional knowledge) of the staff, current process and procedures for operations, and other similar references that will help the new owners.

Courting the Other Party. If you are selling, increase visibility about your organization immediately after deciding to investigate a sale; if buying, look for prospects early and keep looking. This will give you prospects, but it also is an indicator of the degree of difficulty in making your best deal.

It's Not Over Until It’s Over. Deals can evaporate at any time, often based on a gut feel, rather than a discovered defect. It is critical that the communication between buyer and seller is active and that the effort does not let up when almost completed.

The organization must not be actively in the market at this stage of the deal, but continuing to be visible is important to spinning things up again if the deal falls through. Does that happen? Yes, too often – on one transaction, Dick had five buyers, each deep in the sale who canceled for various reasons – he was finally successful with buyer number six.

I have seen deals canceled because of major defects in the buyer or the seller, but I have also seen deals sputter and go dark when everything seemed as perfect as possible. The statistics on non-deals show there are fewer completed deals made than deals begun. In my experience attention to the details and clear, frequent communications increase the likelihood of success.

A view from the top – Tips 4 The Big Chair

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