Most Popular in:
Critical Element For Success: The Advisor
By: George Spilka
Posted: March 5, 2008, from the March 2008 issue of GCI Magazine.
page 2 of 4The normal terms that acquirers usually obtain in these areas are generally accepted by most legal counsel as adequate. However, these normalized terms often leave a seller in a precarious post-closing situation, which could cause them to potentially lose a significant portion of the sale proceeds. Consequently, your advisor must have an intimate familiarity with these issues and have the capability, again, to control the deal process from the LOI to the execution of the DPA. This will assure you the maximum protection in the reps, warranties and indemnifications.
In order to obtain a premium price, an advisor must be tough, aggressive and determined. This is necessary to convince a strong-willed, sophisticated acquirer that things must be accomplished in a way acceptable to the seller. The advisor must understand the leverage points that will pressure an acquirer to provide your desired price and deal terms.
A desirable advisor is one who takes a business-oriented as opposed to a financially oriented approach to the valuation and sale of your company. Most advisors believe the sale process is only a financial exercise; nothing could be further from the truth. Ask yourself the question, “Do all publicly traded companies in a specific industry trade at the same multiple of earnings?”
The answer is no—because of the differences in the companies’ business foundations and what this portends for
future growth and/or threats to earnings.
The only way a seller’s business foundation can be evaluated and a determination be made about the company’s future growth opportunities and/or risks is an advisor’s thorough pre-sale investigation of the business foundation. This includes a detailed investigation of the company’s operations and production capabilities, marketing, personnel, facilities, purchasing and operational cost efficiencies, and demographic considerations related to the industry in which the company operates. By the time the process is concluded, the advisor must thoroughly understand the business niche and how it correlates to future growth and profitability. This will enable an accurate forecast of future profitability and EBITDA.
Many advisors either do not possess the capabilities or are unwilling to spend the time to perform this business investigation. Utilizing only a financially oriented approach will likely have a serious negative impact on your transaction price.
An advisor should also have a history of doing all-cash deals. This type of deal is conducive to minimizing a seller’s post-closing exposure. With the exception of certain highly unusual situations, there is no good reason for a seller not to do an all-cash deal. Advisors that recommend their clients accept other than all-cash deals are being overly accommodative to an acquirer’s needs at the expense of their client.