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Selling Your Company–Removing the Obstacles to Success
By: George Spilka
Posted: January 10, 2008, from the January 2008 issue of GCI Magazine.
page 3 of 58. Acquirers have become too used to either paying for companies with their stock, forcing sellers to accept a substantial amount of notes as part of the transaction price or utilizing a partial contingency purchase price to shift post-closing earnings risk back to the seller.
The major overriding point a selling middle market owner must understand is that any strategic acquirer who really wants their niche will eventually buy it at a premium price. However, the acquirer usually must be forced to pay this price, as they know that most sellers settle for inferior deal pricing. The sophisticated execution of the acquisition process often secures the premium price for the seller. The only acquirers that will be scared off for the long-term by a seller’s aggressive deal positions are the ones that only have a lukewarm interest in buying or in buying at a bargain price.
A selling middle market owner that utilizes the following approaches and methodology in pursuing a potential sale will be in a position to achieve a fully priced deal with strong deal terms that protect them from unreasonable post-closing exposure.
1. When your market niche is the best deployment of an acquirer’s capital, they will buy. If you are talking to the right type of strategic acquirer, this will eventually happen at a premium price. Sellers do not have to give the right strategic acquirer a bargain price to make the acquisition the best deployment of their capital. However, to be successful it is imperative to sell at the optimal time. Correspondingly, sellers must not put time pressure on themselves to consummate a sale quickly.
2. Sellers must convey that their pricing expectations are firm. If the price is not met, there will be no sale of the company. To sustain this position, sellers need the strength, fortitude and confidence to convey that position to an acquirer. A seller is in the position of strength when the acquirer is in fear of losing the deal. Make it clear that there are alternative options to the sale in place, such as acting on succession plans.