By Eran Salu, JD, MBA, CPA
When I talk with business owners who are thinking of selling their business, they often present a host of issues, ranging from how their current employees will be treated by the buyer of their business to whether or not they will be able to keep their office furnishings when the deal is done. In the end, however, the one issue business owners always come back to and focus on is how to obtain maximum value for their business. If you are thinking of selling your business, keep these key considerations in mind:
Focus valuation discussions on the future potential of a business
? A buyer will gain confidence and comfort in a business by performing analysis and thoroughly understanding its historical financial performance. However, when negotiating valuation, it is important to focus the discussions on the future cash flow potential of the business.
? Conducting rigorous industry research and analysis, developing defensible financial projections and presenting the pro-forma financial and strategic benefits (revenue and cost synergies) of the transaction are all steps a seller must take to be effective in valuation negotiations.
Don't leave money on the table by neglecting the intangible value of a business
? At a minimum, a buyer ought to be willing to pay the baseline intrinsic value of a business.
? In many cases, however, sellers forego the opportunity to obtain appropriate compensation for the intangible value of the business. This is caused by the inability of inexperienced sellers to properly substantiate, support and quantify the intangible value of their business.
? Employing proper valuation methodologies and techniques can help sellers maximize value. It is also important to recast historical financial statements in order to show the effect the purchase of the business will have on the buyer's financial results.
Negotiate a winning deal structure
? Properly structuring a transaction is just as important as negotiating valuation. Being experienced in deal structuring and effectively negotiating the terms and conditions of the transaction are critical to securing and preserving the maximum value for a company.
Mr. Salu has been representing clients in merger, acquisition and restructuring transactions since 1993 and has executed deals totaling over $20 billion of transaction value. In 2001, Mr. Salu founded a boutique investment bank, providing financial-based analyses and advisory services in connection with selling and buying businesses, organizing joint ventures / partnerships, restructuring existing businesses, determining business valuations and developing financial projections. Mr. Salu began his investment banking career with Morgan Stanley & Co. in its Mergers and Acquisitions Group in both New York and Menlo Park. Previously, he worked for Ernst & Young in its Financial Transactions Group.
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