When we help clients prepare to sell their business, we coach them to think like a potential buyer. What kinds of financial statements will the buyer expect to see? What kinds of questions will a buyer ask about your leadership team, workplace culture, facilities, and daily operations?
In a way, preparing to sell a company can be like performing due-diligence on your own company. You ask experienced M&A advisors to help you anticipate every possible question a potential buyer might ask.
But when a potential buyer of your business sends a letter of intent indicating plans to make an offer, it’s easy to imagine that the deal is already done. Once someone indicates a sincere interest in buying your company, it’s natural to think first about how much cash you will get at closing.
This is when things can start to go wrong.
If you don’t fully understand who the potential buyer is and what they want to do with your business, you may be setting yourself and your employees up for a post-sale disaster.
So we advise clients to do some “reverse due diligence” after receiving a letter of intent from a potential buyer.
It’s easy to be charmed by potential investors in your company. In their efforts to persuade you to sell, their dealmakers will put their best face forward and present a glorious vision for your company in which everyone will live happily ever after. But that’s not always the case.
Here are some steps to consider for a reverse due diligence process.
Define what you want in an investor. Before you even start the sales process, jot down your vision of an ideal investor. For example: Are they specialists in the industry? Do they have a good reputation? Have they done deals that didn’t work out after the sale? Do they value win-win relationships? Do they treat their employees well?
Get a written commitment to reverse due diligence. Let them know that you are interested in assessing any human-resource issues or other obstacles that might arise during the post-sale integration.
Meet the buyer at their facilities. Look around. Chat with people in the office Does the facility seem to match the culture and environment they promote on their website? In the post-sale transition, the culture of the acquiring company remains intact, while the employees from the acquired company are asked to adapt.
Ask what will happen after the sale. How is their workplace culture different from the culture at your company? Do they have stricter rules? How do they onboard and train employees? How do they compensate executives and sales people? Ask to see a post-acquisition organization chart. Who will report to whom in the merged companies? Which employees or divisions are left off of the organization chart?
If your buyer has previously acquired other companies, talk with employees who formerly worked for the acquired company. Did the buyer keep the promises made before the sale? Or was the post-sale integration radically different than what employees expected? Did key executives and employees immediately leave the company after the sale?
Understand the buyer’s ultimate vision for your company. How will they define success? If their main goal is to close down your facilities and fire your employees, that sale will cause a lot of grief and damage your stature as a benevolent business owner.
Imagine how different your legacy would be if your final act as the business owner was to help the people who helped build your business. What if you sold to an organization in which your employees could thrive and enjoy new opportunities for growth and advancement?
The scenario can’t happen if you don’t really understand the company that plans to take over when you exit the business.
For a sample of the other tips we give our clients, download our free whitepaper, Code Red: 12 Seller Mistakes. Or give me a call at 561-540-2323 to learn more about how the LaManna Consulting Group can help you prepare for the sale of your business.