Both parties have signed the Letter of Intent in which the ground rules for conducting the due diligence have been outlined. As the buyer, you will need to put together a team of due diligence experts; e.g., appraisers, accountants, lawyers, environmentalists, to verify and challenge all the representations. Notwithstanding the expert’s views, herewith a brief check list for the buyer to confront the seller.

Operations
Review the current year’s financial statements; e.g., interim, monthly, quarterly, compared to the budget. Focus on the incoming orders and analyze the backlog.

Industry structure
Compared to the industry, analyze the company’s products and distribution channels. Figure the percentage of sales by product line, review the pricing policies such as discount structure and discuss the product warranties. Read the rest of this entry »

The Letter of Intent (LOI) is a pre-contractual written instrument prepared by the buyer for the seller, which is usually the preliminary understanding of both parties. Other names used for LOI are Memorandum of Understanding and Agreement in Principal. The LOI precedes the Acquisition Agreement, better known as the Purchase and Sale Agreement. It is a non-binding agreement subject to the buyer obtaining satisfactory financing and subject to satisfactory due diligence by both parties.

This is how the LOI has been defined by Stanley Foster Reed, author of The Art of M&A: “A Letter of Intent is a pre-contractual written instrument which defines the respective preliminary understandings of the parties about to engage in contractual negotiations. In most cases, such a letter is not intended to have a binding effect except for certain limited provisions. The Letter of Intent crystallizes in writing what has, up to that point, been oral negotiations between the parties about the basic terms of the transaction. While the Letter of Intent is usually non-binding, it does create a moral commitment and allows the buyer to proceed with the extensive due diligence process with a feeling of confidence. Conversely, the seller is required to withdraw the company from the marketplace and not discuss the potential sale with anyone else.” Read the rest of this entry »

Most small business owners are not familiar with the dynamics of selling a company, because they have never done so before. There are numerous potential “deal breakers.” Avoiding the following ten mistakes should mitigate the possibility of an aborted transaction.

1. Don’t Neglect Running Your Business
A major reason small companies with sales under $20 million become derailed during the selling process of the business is the owner becomes so consumed with the pending transaction, that he neglects the day to day operation of the business. During the selling process, which can take six to twelve months from beginning to end, the CEO/owner typically takes his eye off the ball. Since the CEO/owner is the key facet to all aspects of the business, his lack of attention to the business invariably affects sales, costs and profits. Then the potential buyer becomes extremely concerned when the business flattens out or falls off. Before long the potential buyer gets cold feet when the business turns south and the deal craters. Read the rest of this entry »

As a seller, it is easy to become paranoid about the various ramifications of other people hearing that your company is for sale… especially employees, customers, vendors and competitors. In my opinion, sellers are generally overly concerned about the breach of confidentiality, which if it occurs is apt to happen at the end of the selling process… too late to cause serious damage.

Facing Reality
If you want to sell your company by attracting the strongest potential buyers who will offer you the best deal in terms of price and structure, then you should consider the following: – confide in a few of your top managers, especially the CFO – contact on a confidential basis most of the industry players including some competitors – release an Offering Memorandum to potential buyers, after a confidentiality agreement has been signed, which will disclose a substantial amount of confidential material on your company – allow some potential buyers to walk through your premises and operations during working hours – provide access to some of your more important customers and vendors as part of the due diligence process prior to the final signing of the Purchase & Sale Agreement. Read the rest of this entry »

Traditionally speaking, a seller should be rather coy and not be too revealing as to his or her ultimate intentions. As a matter of example, Cary Reich, author of the book: The Life of Nelson Rockefeller, states:

“The modest unassuming and subservient John D. Rockefeller, Jr. was overly burdened with his father’s obligations, but he surprised all as an astute bargainer. When the indomitable J.P. Morgan was seeking the Rockefeller’s Mesabi iron ore properties to complete his assemblage of what was to become U.S. Steel, it was Junior who went head-to-head with the financier. ‘Well, what’s your price?’ Morgan demanded, to which Junior coolly replied, ‘I think there must be some mistake. I did not come here to sell. I understand you wished to buy.’ Morgan ended up with the properties, but at a steep cost.”

Sellers’ Ten Mistakes
1. Selling your business is emotional and distracting. It is very important to retain professional advisors Read the rest of this entry »

Experienced and professional acquirers often have the advantage in dealing with many inexperienced corporate sellers who are selling their business for the first time. On the other hand, buyers have a very formidable task in acquiring a company, because the facts need to be uncovered through careful, pragmatic analysis. The following ten items are matters that some buyers might overlook.

1. The industry As part of an acquirer’s assessment of the target company, he should review the industries in which the potential seller’s customers and suppliers operate. This method of due diligence is frequently called a SWOT analysis in which the buyer reviews the Strengths, Weaknesses, Opportunities, and Threats of the potential acquisition candidate’s competitors. For example, with the consolidation in retailing and the concurrent rise of Wal-Mart, Home Depot, Staples, and others, power has clearly passed from the manufacturers to the retailers. When Rubbermaid with annual sales of $2.2 billion Read the rest of this entry »

Emotion
Purchasing of a business is unlike a purchase of property in that it is less a pragmatic process than an emotional experience, perhaps more akin to a romance. This is especially true when the target company is privately held. The buyer must work hard to put himself in the shoes of the seller in order to determine the real reasons why the seller is talking about a sale. The real reasons is seldom obvious and sellers usually sugar-coat the problems; Al Smith was right when he said, “Nobody shoots Santa Claus.”

Think hard about the question, “What am I buying?” Intellectual property, especially know-how, is becoming increasingly important even in businesses not primarily service in nature. The most important element of due diligence may be dividing the mindset of key employees; first you must figure out who they are and then read their minds. Read the rest of this entry »

Use this checklist to rate the factors that are important to you. Use it as a scorecard to keep a record of your visit – and your impressions. Although impressions are important, they do not replace a thorough investigation of the business itself. Your business broker may supply you with some basic financial information. You may also want to make notes about the factors you feel are important – or not – as the case may be. We suggest that you use a scale of 1 to 5, with 5 being the highest. This will allow you to provide a rating for each business that you visit. This may provide an easy way to compare the various businesses you will look at. Read the rest of this entry »

Orlando Business Journal’s Forty Under 40 competition, which began in 1996, spotlights 40 of the region’s top young business and civic leaders.
Those selected showed consistent, outstanding professional achievement and a commitment to community service.
Many of them attribute their success to integrity, hard work and the Golden Rule.
Their favorite stress relievers range from spending time with family to praying, laughing, doing some form of exercise and drinking tequila or wine.
And amazingly enough, some of them are willing to stand in line for up to 18 hours for concert tickets, while others don’t mind waiting for theme park rides Read the rest of this entry »