1. Be Careful with Private Equity Buyers. Private equity firms are in the business of buying and selling companies. Accordingly, they are extremely sophisticated and savvy and are often represented by large, aggressive law firms. Deals with private equity buyers are generally more complex than those done with strategic buyers due to, among other things, the level(s) of debt added to the target and/or financial engineering. Moreover, unlike most strategic buyers, private equity buyers usually require the selling entrepreneur (i) to rollover part of his/her equity into the acquirer (i.e., to maintain skin in the game) and (ii) to include a financing condition in the acquisition agreement — which, in today’s choppy debt markets, adds a level of uncertainty to closure.
2. Hire an Experienced M&A Lawyer Before You Hire an Investment Banker. An experienced M&A lawyer will not only help protect the selling entrepreneur in the actual sale process, but also will help retain a strong investment banker and negotiate the banker’s engagement letter. Indeed, investment bankers can (and should) be played off of each other to lower their respective fees — just like effective bankers play prospective buyers off of each other to get a higher sales price and better terms for the seller. This approach can lead to substantial savings for the entrepreneur.
3. Get Your Papers in Order. An easy way to instill confidence in prospective buyers is for the selling entrepreneur to deliver (or make available) a complete, well-organized set of diligence documents. Accordingly, prior to initiating the sales process, the entrepreneur should ensure that the corporate books are cleaned-up, agreements are memorialized and/or updated to the extent necessary, public records do not reflect previously-released liens, etc. Moreover, financial statements should be recast by experienced accountants to paint a more accurate financial picture of the business.
4. Develop a Game Plan. Every deal is different — different players, different negotiating leverage, different risks, different timing — and it is thus imperative that the selling entrepreneur sit down with the transaction team and strategize to develop a game plan in connection with the sale. The entrepreneur must communicate to the team, among other things, his or her deal-breakers, wish-list, problems and, of course, budget. An experienced M&A lawyer will quarterback the transaction and ensure that the game plan is being executed.