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Most business owners sell only one business in their lifetime. It is complex, emotional and pressure packed. Given this backdrop, the odds of a great outcome are, well, not that great.
One of the most important functions of an M&A Advisor is to prepare the client for the bumpy road ahead. The worst outcome is to go through the exhaustive process of marketing the business, corporate visits, and due diligence, only to have the deal crater in month eight because of some ruffled feathers or perceived bad faith dealings.
First an advisor should try to make the seller understand that as the process unfolds and as the buyer tries to memorialize the parties' understanding in documents, new elements are added. For example, taking a discussion between buyer and seller on value may be followed with a "non-binding" letter of intent where for the first time, the structure is described. The seller may react very negatively if he was thinking of a $7 million wire transfer at closing and the written document combines $4 million cash at close with a $1 million seller note and an earn out that caps out at $2 million.
If we had not earlier forced the issue or warned our seller that this was a possibility, then maybe we deserved to have an unhappy client. Our goal is to turn this from a "he changed the transaction" deal breaker to a couple of deal points that we negotiate.
Another sticky point if the seller is not prepared is the concept of the net working capital adjustment.
Dave Kauppi is a Merger and Acquisition Advisor with MidMarket Capital Advisors, LLC. MMCA is a private investment banking and business broker firm specializing in providing corporate finance and business intermediary services to entrepreneurs and middle market corporate clients in a variety of industries. The firm counsels clients in the areas of M&A and divestiture, family business succession planning, valuations, minority interest shareholder sales, business sales and business acquisition. Dave is a Certified Business Intermediary (CBI), a licensed business broker, and a member of IBBA (International Business Brokers Association) and the MBBI ( Midwest Business Brokers and Intermediaries). Contact Dave Kauppi at (630) 325-0123, email davekauppi@midmarkcap.com or visit our Web page www.midmarkcap.com.
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