Advertisement CORPORATE GROWTH & M&A JANUARY 19-25, 2015 S-15 M&A TRANSACTIONS Early planning yields best results when selling a business BY JAKE DERENTHAL Planning is critical when considering the sale of a business if you want to maximize price and minimize risk and stress. Business owners should engage outside advisers well in advance of any sale. Your team may include accountants, attorneys, investment bankers and estate planners. It’s helpful to start with people who know your business, but each should have experi- Assemble Team of Advisers ence facilitating transactions in your industry. Advisers who regularly counsel clients in M&A deals efficiently prepare and analyze documentation and provide owners insight into market terms. numbers in hand, management should consider its reasons for selling and whether data shows such sale will achieve desired results. After assembling your team, it’s time to evaluate the true value of your business. This process involves the review of financial performance, competitive strengths/weaknesses, and market conditions. With unbiased Conduct internal analysis DERENTHAL It’s all in the details – how ‘small’ matters can greatly affect your transaction BY MICHAEL D. MAKOFSKY AND JACK M. KEGELMEYER When a business is sold, the owners typically realize a significant increase in wealth. However, many details must be addressed to achieve this result. Some issues are not always considered essential to operation, so the owner may neglect them. Yet, these seemingly small details can interfere with this important event in the business owner’s career. The following are a few examples to consider: It is crucial to not only identify liens on the company’s assets, but to establish a clear process for their release, including who will sign. For example, if a company has shareholder debt secured by real estate, but the mortgages are in the name of a deceased former owner and have never been properly assigned, then no one would be able to sign a release of the mortgages, which would delay the closing. Most sellers are unprepared for the volume of files to be reviewed in a disposition. Start creating a data room early where documents are stored prior to outside disclosure. Materials to review include corporate, financial, tax, IP, material contracts, employee, benefit, and litigation records. With enough lead time, diligence can be collected without risking interruption caused when employees get wind of rumored transactions. Organize due diligence “pitch book” that may be a formal presentation or simple summary with attached financial statements. In addition to highlighting positives, your book presents an opportunity to diffuse concerns that might raise buyer eyebrows. Before disclosing information to bidders, be sure they sign confidentiality agreements. While the non-disclosure agreement provides protection, savvy owners will disclose information in stages to protect trade secrets. Identifying the right buyer requires evaluation beyond purchase price. Sellers should investigate buyer background and performance, business synergies, sources and timing of consideration, tax implications, deal structure, and exposure to liabilities and indemnification. Once you settle on a buyer, key terms are documented in a letter of intent. Your letter of intent generally contains non-binding descriptions of structure and price with binding obligations regarding exclusivity and serves as the parties’ roadmap for negotiating definitive transaction agreements. Following these common sense steps will allow you to effectively navigate purchase agreement negotiation, transaction diligence and closing the deal to reap rewards from years of growing your business. Negotiate letter of intent Select a buyer Tell your company’s story Your next move is crafting a Jake Derenthal is a Partner in the business practice group of Cleveland-based Walter | Haverfield LLP, where he counsels clients on merger, acquisition, and financing transactions. Contact him at 216-9282933 or jderenthal@walterhav.com. There’s no place like home MAKOFSKY KEGELMEYER That’s why we’ve called Cleveland home for over two decades INTELLECTUAL PROPERTY RIGHTS Does the company own its intellectual property? Large enterprises routinely require employees to sign invention, confidentiality and noncompete agreements that assign ownership of intellectual property created by the employee to the company and ensure that employees cannot “set up shop” down the street. It is important to know whether or not the business has these agreements in place before a prospective buyer has identified the issue because a lack of existing agreements creates intellectual property risks for a prospective purchaser. This can result in delays and additional costs, but most notably, the employee or buyer could have considerable leverage over the negotiations. In order to avoid these types of situations that can disrupt a large transaction, an attorney can help you perform a pre-sale due diligence to identify issues like these in enough time to rectify the situation and facilitate a smooth closing. To learn more about Riverside’s strategies to grow companies with $1 million - $30 million in EBITDA, contact Cheryl Strom, Origination, at +1 216 535 2238 or cstrom@riversidecompany.com. LIENS Many contracts require counterparty consent prior to assignment or contain provisions allowing them to terminate if there is a change in control of the other party. Business owners don’t want to disclose the existence of a transaction too soon in case it does not close and it alters the relationship with a vendor or customer. However, the counterparty could demand concessions if asked too late. Therefore, the process of obtaining consent for the change in control needs to be managed carefully. THIRD PARTY CONSENTS /CHANGE IN CONTROL PROVISIONS Michael D. Makofsky is Principal with McCarthy, Lebit, Crystal & Liffman Co., L.P.A. Contact him at mdm@mccarthylebit.com or 216-696-1422. Jack M. Kegelmeyer is Of Counsel with McCarthy, Lebit, Crystal & Liffman Co., L.P.A. Contact him at 216-6961422 or jmk@mccarthylebit.com. The Riverside Company | 50 Public Square, 29th Floor Te r m i n a l To w e r, C l e v e l a n d , O H 4 4 1 1 3 Crain’s Cleveland Business Custom Publishing