A potential business sale transaction can be an exciting time for a business owner. Sales represent the payoff for all that hard work over years or decades. However, this is rarely a simple process. A successful M&A transaction requires a lot of hard work on your part, and usually several months of preparation.
We were proud to represent Portland-based, family-owned Malarkey Roofing Products in its recent $1.35 billion deal with The Holcim Group, based in Zug, Switzerland. The sale represents a great outcome for the founding family, and an excellent opportunity for the business to continue to grow. The acquisition was to be completed in February 2022. Malarkey, which manufactures durable, high-performance roofing shingles and has more than 400 employees at three locations, was founded in 1956 by Herbert Malarkey.
Successful M&A transactions like Malarkey’s begin by changing the business owners’ perspective from an operational perspective to a transactional one. Instead of thinking like an owner, they need to think like the people who will play a key role in the deal. Potential buyers and employees of the business are the two primary components.
think like a buyer
As a starting point, owners should view their business through the eyes of a buyer. Remember that operational issues that no one really thinks about on a day-to-day basis can irk a buyer. Do you currently have signed agreements? Or are you working on expired agreements or handshake deals? Do you have a properly executed, long-term lease for your primary operating facility? Buyers want current, signed agreements with counterparties.
Similarly, do you own your intellectual property (IP)? Do you infringe others’ IP? Is your IP protection program really strong, or do you have employees and contractors without IP assignment agreements? Buyers want minimum ambiguity.
If you have any pending business disputes or regulatory issues, resolve them, if possible, before proceeding to the business sale. An unresolved dispute can make the buyer uncomfortable.
These are just some possible operational considerations – each business will have its own set of issues to identify and address.
think like an employee
It also makes sense to consider employee incentives before moving on to a deal. The business sales process is often cumbersome; Without the right incentives, employees may resent the extra work and worry that once the sale is complete, they may not have a job.
For those employees who will be responsible for keeping the business going, the new buyer will be their boss, not you. These potential conflicts of interest between owners and employees are often overlooked but are very real. For example, management personnel sometimes “jump the fence” during business sale transactions and begin promoting the buyer’s interests. This is usually because these employees feel they are under- or under-compensated. Unhappy employees, especially key managers, can sabotage a deal.
Successfully completing your company’s sales is data intensive and requires considerable organization. Buyers will require various types of necessary documents. Setting up an electronic “deal room” for transactions, especially at the beginning of the sales process, can help you avoid crisis mode and maintain deal momentum.
Deal Room helps you organize and store all the necessary documents anticipated to complete the deal. A side benefit for many companies is that the collection of a comprehensive set of current corporate records often provides immediate operational benefits, such as a deeper understanding of company equity structures, tax planning opportunities, IP vulnerabilities, indemnity risks and other business issues.
A deal room is also efficient during the sales process, especially if you have many interested buyers. You can control access to your corporate, financial and operational information on a user-by-user, file-by-file basis.
Why go to such lengths?
Thinking like a buyer, systematically clearing up any outstanding issues within your operation, and providing complete documentation will put you in a good position to negotiate the best deal price and terms. Thinking like an employee can keep your transaction from derailing in the negotiation process.
If you don’t take the time, the buyers take advantage. A buyer may use unresolved or unclear operational issues to justify a lower price or other less favorable deal terms. Good preparation helps generate a high-dollar offer for your company and makes it more likely that your transaction will close quickly and efficiently at the highest price.