There are several potential deals in process now; for a change there appears to be more sellers than buyers, perhaps due to the pending changes in tax laws. For whatever reason, this is one of those very busy times for private equity firms, their research contractors, and the various people and firms that play some role in the deal assessment process.
I’ve participated in several transactions, and while I don’t pretend to be an expert I have seen enough to know some of the more common mistakes/errors in judgment/exaggerations and the impact of same.
For example.
Don’t claim that any payer that ever sent you a payment is a ‘customer’. Differentiate between real, honest to goodness customers – those you have a long-standing relationship with, and other revenue sources. Sure, you can argue with some basis in fact that anyone who pays you is by definition a customer, but when the smart young research people start digging deeper you’ll find yourself not being able to answer basic questions about this ‘customer’. Which will lead potential Investors to wonder if you know what a customer is and anything about your’s.
Don’t over-enthusiastically forecast. The research firm will vet that info carefully with folks who actually KNOW what’s going on in the market, and you’ll find yourself either a) answering uncomfortable questions or b) answering awkward questions post-deal when you don’t hit your numbers. Or possibly both.
Remember the old adage: pigs get fat and hogs get slaughtered. (hat tip to John Swan) Share the wealth between and among staff; they helped get you there and deserve your thanks. Think of it this way; is another million going to mean as much to you as it would parceled out among your employees?
Do your own due diligence on potential buyers, and absolutely stay away from potential buyers with heavy baggage. There are really good investment firms looking for deals and some on the other end of the spectrum. Ask around, talk to people who’ve sold companies before, and if at all possible who’ve dealt with the firms you’re negotiating with.
Watch the earn-out. It’s perfectly acceptable to have one in the final deal, as long as it’s achievable, provides a nice upside for over-achievement, and the worst case scenario is something you can live with.
Do spend a lot of time with the future board. You are going to have to live with them, and while you don’t have to like them you do have to understand and respect the board.
And finally, be reasonable. A business is just that. It is not a child or even a much-loved black lab.
Oct
11
