Preface xiii
Acknowledgments xvii
Chapter 1 Why People Sell Businesses 1
Honesty Is the Best Policy 2
Most Common Reasons People Sell 4
Retirement 5
Differences among Co-Owners 5
Illness or Death 6
Change in Strategic Position 7
Financial Sponsor Liquidity Event 8
Financial Pressure 9
Unsolicited Offer 9
Proactively Making the Sale Decision 10
Notes 11
Chapter 2 Should the Seller Hire an Intermediary? 13
What Do Investment Bankers Do, Anyway? 14
Criteria for Selecting an Investment Banker 19
General M&A Experience 19
Specific M&A Experience 19
Marketing Philosophy 20
Contacts 20
Temperament 22
Investment Banker Fees 23
Choosing the Right Investment Banker 29
Notes 32
Chapter 3 What Is the Business Worth? 33
Valuation Methodologies 34
Book Value 34
Multiple of Some Measure of Earning Power or Cash Flow 36
Intangibles Such as Technology or Market Position 38
The Synergy a Seller Could Provide a Buyer 39
Applying Valuation Theory to Real-World Situations 42
Cases Where Dividing the Business Created Value 43
Cases Where a Strategic Buyer Unlocked Value 47
Notes 50
Chapter 4 The Difference between “Value” and “Currency” 51
Mediums of Exchange in M&A 52
Cash 52
Notes 52
Stock 54
Stock Options 56
Contingent Payments 57
Sale of a Company’s Stock 59
Notes 61
Chapter 5 Taking Advantage of the Seller’s Unfair Advantages: Prepping and Timing 63
Preparation 64
Environmental Issues 64
Lawsuits 66
Tidy up the Financial Statements 67
Cosmetic Issues 68
Web Site Upgrades 68
Management Changes 68
Timing 71
Long-Term Timing Dimension 71
Short-Term Timing Dimension 73
Involving the Management Team 75
(Not) Involving Company Employees 80
Informing the Workforce 81
Dealing with Leaks 82
Conclusion 86
Notes 87
Chapter 6 Preparing the Documents 89
The Offering Memorandum 90
Executive Summary 91
Industry Description (Optional) 92
The Business 92
Financial Review 100
Exhibits 103
The Executive Summary 106
The Management Presentation 110
The Data Room 112
The Definitive Purchase Agreement 116
Notes 116
Chapter 7 Identifying and Cultivating the Right Buyers 117
Strategic Buyers 118
Financial Sponsors 125
Diversification Parties 132
Employee Stock Ownership Plans 133
Management 136
Family Members 139
Notes 141
Chapter 8 How Many Buyers to Approach? 143
Negotiated Sale 144
Limited Auction 150
Broad Auction 152
Notes 155
Chapter 9 Approaching Prospective Buyers 157
Confidentiality 158
Distributing the Offering Memorandum to Buyers 165
Securing Buyers’ Indications of Interest 168
Appendix 9A: Confidentiality Agreement 174
Appendix 9B: Sample Process Letter 179
Appendix 9C: Indication of Interest 181
Notes 183
Chapter 10 Management Presentations and Plant Tours 185
Management Presentations 186
Management Presentation Blocking and Tackling 186
Practice Makes Perfect 189
Management Presentation Pitfalls 189
Facility Tours 190
Next Steps 193
Notes 194
Chapter 11 Negotiating the Purchase Price 197
The Letter of Intent 198
Case-Specific Negotiating Strategies 201
Case 1: One Clearly Superior Offer 202
Case 2: Four Comparable Offers 204
Case 3: A “High Price with Tough Terms” Offer versus a “Lower Price with Reasonable Terms” Offer 206
Case 4: Three Offers with High Prices and Tough Terms 207
Case 5: One High Price Offer with Tough Terms 208
Case 6: Six Offers with Different Forms of Consideration 209
Case 7: Five Offers with Different Legal Structures and Different Forms of Consideration 213
Negotiating Dynamics 215
Appendix 11A: Letter of Intent 217
Notes 223
Chapter 12 Moving from Letter of Intent to Closing 225
The Negotiating Dynamics Have Reversed 226
Exclusivity 226
Maintaining Performance between the LOI and Closing 227
Negotiating Out the Purchase Agreement 229
Buyer Due Diligence 230
Hart-Scott-Rodino Filing 232
Keeping the Closing Process on Track 234
What if It’s Not Meant to Be? 237
Seller’s Exposure if the Buyer Does Not Close 237
Interim Milestones and Backup Buyers 238
Appendix 12A: Definitive Purchase Agreement 240
Notes 247
Chapter 13 Sales Forced by Bankruptcy or Financial Duress 249
The Painful Decision to Act 250
Time Is of the Essence 251
Senior Lender Dynamics 252
Secured Party Sales 256
Sales Engineered before Filing, but Closed in Bankruptcy Court 257
Sales Engineered and Closed in Bankruptcy Court 259
Notes 267
Chapter 14 Working with Lawyers 269
Legal Involvement from Day One 270
The Lawyer’s Distinct Role 270
Deal Makers versus Deal Breakers 271
Retaining the Right M&A Lawyer 272
The Legal Check-Up 274
Collaborating with the Investment Banker 274
Drafting and Negotiating the Purchase Agreement 275
Effective versus Ineffective Lawyering 278
Managing the M&A Lawyer 280
Appendix 14A: Seller’s Attorney Pretransaction Checklist 281
Note 288
Chapter 15 After the Sale Has Closed 289
Post-Closing Immediate Cooperation 290
Employee Notification 290
Customer Notification 291
Supplier Notification 292
General Public Notification 292
The Month Following Closing 293
Alternative Notification Methodology 293
Post-Closing Subsequent Matters 295
Post-Closing Hubris 296
Post-Closing Legal Matters 297
Post-Closing Financial Matters 298
Taxes 299
Charitable Giving 300
Investments 303
New Horizons 304
Leveling the Playing Field 305
Notes 305
About the Author 307
Index 309
