Market surveys and anecdotal evidence suggests that mergers and acquisitions activity has picked up over the last couple years. A stable economic climate, active private equity investors, and growth in the equity markets has provided a tailwind for these transactions. Given this climate many business owners are considering their options. Whatever form a sale takes it is important to think of this as a process with several steps and not a quick out.

Exit Rationale

Owners are well-served in exploring the reasons behind a potential sale. Two of the more common are retirement and capital infusion to assist in breaking through a barrier. The structure of a potential transaction will differ dramatically depending on these goals. Family ownership is another factor which can add a level of complexity to structuring a transaction that meets everyone’s needs.

Big Picture Items

One of the most important goals of this pre-planning process is to leave as little money on the table as possible. In order to do that, owners should evaluate the following areas:

1. Professionalized management
2. Quality financial reporting
3. Financial understanding
4. Legal compliance
5. Shareholder disputes

Professionalized management refers to situations where not all of the knowledge and business contacts reside in one person, who is the owner and president. From a buyer’s perspective, having so much of the company’s worth bound up in one individual is risky. The individual may get injured, die, or decide to walk away all of which would greatly diminish the value of the enterprise. Hiring a president or CXO can dramatically increase the value of the enterprise.

Quality financial reporting is essential to the successful closing. The problem is that while some owners believe that QuickBooks and a book-keeper are sufficient, many buyers expect reviewed or even audited financial statements. The addition of, at least a controller, and a CFO in the case of larger private companies can make a big difference in this regard.

Early on in the process the buyer will want to see if the seller understands what the business profit drivers are. The inability of an owner or someone on his team to explain the underlying economics between revenues/profit/margin will leave a negative impression with a potential buyer.

Compliance is often the most ignored area for SMBs. While understandable, there are few things that will kill a deal faster than outstanding IRS tax liens, problems with franchise tax boards, and an absence of corporate minutes. In regulated industries, these issues become even more important and could jeopardize the future existence of the firm.

As if on cue, disgruntled shareholders often come out of the woodwork when the seller receives a letter of intent, or due diligence request from a potential buyer. The timing could not be worse and is intended to give the disgruntled party extra leverage in their conflict with the company. Conflicts that cannot be quickly resolved or contained often cause deals to fall apart.

Build a Deal Team

Since most owners are not experts in the area of mergers & acquisitions, it makes sense to assemble a team of professionals to assist with transaction planning. The team may consist of the following:

1. CPA well versed in M&A transactions, if your regular CPA firm does not already have someone
2. Personal tax expert
3. Estate planning attorney
4. M&A attorney

Tax issues can be paramount in structuring transactions both on a corporate and personal level. To take advantage of any tax reduction strategies may require that the planning is completed 12-36 months before an exit. Reducing estate tax liabilities in M&A transactions is a specialized and not necessarily straight-forward area that warrants the use of a professional. Selecting an advantageous transaction structure for the sale will require early and significant input from your M&A attorney.


Business owners who explore their reasons for selling, address a buyer’s main concerns early on, and assemble a team will be well positioned to maximize their chances of a successful outcome. Achieving this in practice requires a long term view and early planning to achieve the best results.

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