Situation: The owners of a company wish to sell the company. The CEO is 50% owner and some senior employees are partial owners. Ideally the CEO wants to maintain the company’s culture for the good of the employees. What should the CEO look for in an acquiring company or a merger? What pitfalls should be avoided?

Advice from the CEOs:

• Key Considerations – Define the exit objectives. Understand that pursuing an exit will take time away from other activities. Know your buyer’s team.
• Stakeholder Alignment – Make sure various stakeholders agree in advance on exit objectives.
• “Keep an eye on the ball” – Selling a company can be a distraction. Focus on running the company, not on the novelty of selling.
• Watch Out for Deal-Killer Individual – One member told of a CFO of a buyer company who sabotaged a sale at the last minute.
• Qualify the Buyer’s Decision Process – It is valuable to understand the process that the buying company will follow to made the acquisition.
• Broker or M&A Specialist? – About 50% of private party deals are not handled by a broker. These are sales within the industry. Few sales to insiders, such as employees or family, are handled by brokers. The same is true for synergistic companies that are already familiar with each other.
• Avoid Over Reliance on a Broker – One member told of losing touch with important details of a sale transaction when using a broker. A better alternative was a transaction advisor as opposed to a broker paid by commission.
• Consider an “Insider” Sale – Some businesses cannot be easily sold to outside buyers. In this case selling to insiders, employees or family may be a good solution. Employee Stock Ownership Plans (ESOPs), or “S” ESOPs using an S-Corp entity, have been numerous and successful.
• Consider Private Equity – One member spoke of selling to an investment group or private equity group that specializes in buying smaller companies.
• Buying on the Come – Buyers look for growth. Showing a history of profitable growth is highly desirable. Having a plan for future growth in place is also valuable.
• Leverage Strategic Partners to Boost Value – One way to increase equity value is to partner with another company. Examples include a partner that provides greater distribution and sales, or which can validate the viability of a technology. That partner can become a future purchaser.

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