Glickman’s Ten Commandments on the Selling of a Privately Owned Company
I. NEVER EVER MENTION AN ASKING PRICE
If you do mention an asking price, you set a value you will never exceed. Your company
is worth different amounts to different buyers – depending on what they bring to
the table, their risk tolerance, etc. Your objective should be to provide buyers
with all the information they need (short of due diligence materials) to make an
intelligent offer. You never know when you will be surprised.
II. OFFERS MUST BE WRITTEN
There is absolutely no such thing as a verbal offer. It means nothing. If a buyer
verbally mentions a price, ask him to put in in writing in the form of a Terms Sheet
or Letter of Intent. They are both non-binding legally in most respects but they
are “written handshakes” and once signed by the seller usually means he has to
stop shopping the company for a while. The buyer has ways to get out of the deal
but get him to write it down. There can be a long way between a verbal offer and
what it becomes once it is reduced to writing.
III. GET ALL THE OFFERS ON THE TABLE AT THE SAME TIME
Easier said than done, but the true “art of the deal” is to organize your efforts
so as to get all the offers on the table at the same time so that you can intelligently
choose among them. This means hurrying up some buyers and slowing down others. Offers
generally have a life to them so this juggling act becomes very important.
IV. DO NOT PLAY ONE OFFER AGAINST THE OTHER
It’s not ethical, it’s not fair and it’s not smart. By not putting an asking price
on the business you are, in effect, running an auction. Tell everybody to give
it their best shot because there are others competing for the deal. That’s all you
have to do. Once you tell Buyer 2 what he has to bid to beat Buyer 1, Buyer 2 knows
right away you are going to tell Buyer 3 what he has to bid to beat him, Buyer 2.
It’s not right and it is not necessary.
V. VALUE THE REAL ESTATE SEPARATELY FROM THE BUSINESS
Whether or not the real estate is owned separately from the business, be sure you
value them individually. Real estate is valued differently from businesses and lumping
them together often means not getting full value for either one.
VI. BE HONEST AND OPEN
A major reason deals die is that in the course of the buyer’s due diligence he finds
something about which he was not told. Very bad. In the course of preparing materials
and showing the company it is crucial to tell the buyer everything before he gets
to due diligence so there are no surprises. Put it in the best possible light but
tell him what the problems are, what you are doing to solve them and what more he
may have to do after he buys the business. Tell him before he tells you. It can
be a deal saver.
VII. ONLY ONE DUE DILIGENCE
Due diligence can be an arduous, time-consuming and nerve-wracking process. Buyers
would love to do a due diligence-type analysis before they make an offer. Resist
this. You only want to do it once. Offers should be contingent upon successful
completion of due diligence and only allow the one buyer, whose offer you have accepted,
perform due diligence. If everything goes right, you will have only had to go through
VIII. INVOLVE YOUR KEY PEOPLE IN THE SALE PROCESS
This is always touchy. I am of the belief that it is usually a good idea to bring
your key people “into the tent” when selling your company. It is seldom a surprise
to them when you announce your intention, even if you think it will be. Having them
as a part of your team not only takes pressure off of you but buyers want to meet
them and get to know them. Competent management is a key driver in value consideration
so show off your people.
IX. HAVE EXPERIENCED COUNSEL
Some say that there are only two types of lawyers in this world – deal makers and
deal killers. Of course, that is not entirely fair. Some deals shouldn’t be closed.
But always get a lawyer who specializes in transactional law. There are many specialties
in the law. Get a deal person! I do not recommend accepting a fee arrangement with
a lawyer in which he gets paid more if the deal closes. You do not want your lawyer
to be incentivized to say yes. Sometimes he should tell you to stay away, and not
get paid less for saying that.
You might not like it but, at the end of the day, it’s all about the numbers. Numbers
get written on a check with your name on it because of the numbers the buyer expects
to receive by owning your business. Your historical numbers have to be right and
you must understand what they mean. Recast your numbers to what your company would
look like without all the personal expenses you take out and the one-time events
that have occurred in the recent past. Forecast and document your vision for the
future. Create analytics that will help buyers understand what’s really going on.
It’s all about the numbers!
Pick out a nice place for the closing dinner. You earned it!