BUILD YOUR BUSINESS FOR BUYOUT APPEAL AND LEAVE A LASTING LEGACY

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Let’s face it, nothing is forever. One day you will retire, and you’ll want to leave behind a legacy. Whether that involves an outright acquisition of your business or turning it over to a family member or business partner, you should ask yourself two questions: What do you want that day to look like? What do you want your business to look like when you pass it on to the next owner?

There are many age-old theories about preparing your business for sale. One of the oldest and most common theories business owners use is to start networking with potential investors and purchasers at the last minute. However, it’s important that business owners begin the process of networking with and talking to potential buyers and investors throughout the life of the company. By getting to know interested parties early in the lifecycle of the company, interested parties can get to know your business better and can gain a higher comfort level with your operation.

Additionally, many business owners think they know who the potential buyer or investor will be, thus neglecting other potential prospective buyers. But business owners, along with their team of advisors, would do better to identify the pool of potential investors or purchasers and then become dedicated to pursuing multiple options upon exit, which makes staying aware of industry mergers, acquisitions, and other happenings vital. Growing a business is a difficult task in and of itself, yet in the long run, preparation and planning are imperative to creating value.

Building value in your company is a long-term proposition, but you must first identify both your long- and short-term goals and objectives, not only for your company, but also for yourself. Typical questions that require evaluation include:

1. Personal goals and objectives

2. Partnership (if applicable) goals and objectives

3. Growth expectations

4. Time horizon

5. Current and future market dynamics

Furthermore, you and your management team need to develop a “marketing document” that explains what your business does. Many business owners struggle with succinctly translating the products or services their business provides, but to help get you ahead of the game, this document needs to address the following topics:

1. Executive summary highlighting the company’s key attributes

2. History of the company

3. Services provided

4. Industry research

5. Competitive advantages

6. Growth opportunities

7. Acquisition considerations

Once you’ve accomplished crafting a marketing document, you have essentially made a direct path from the inception of the company to the ultimate exit strategy. By creating a company that’s offerings are highly sought after by larger companies, an owner can significantly increase the chances of being acquired. This naturally creates enthusiasm among investors. Almost every investor you will encounter will be interested in knowing your exit plan.

It’s worth remembering that the negative repercussions of a poorly devised and executed exit strategy affects more than just the sale itself, but also the payout needed to enable the entrepreneur to continue to build companies and perhaps pursue other growth opportunities. This is typically achieved by taking on post-entrepreneurial interests that may have been neglected for years due to other priorities.

Most of the potential buyers you will encounter have much more experience purchasing companies than you do selling companies. Don’t let this intimidate you. Instead, surround yourself with experienced people who can help you through the acquisition process. A good place to start is with legal counsel, an accountant, or a financial advisor who possesses a strong background in business transactions. It is also essential to bring on advisors who are familiar with your industry, know of potential strategic buyers, and understand the intricacies of acquisitions. These advisors have most likely sold businesses in your industry before and can provide you with valuable insight and advice. However, be mindful of the counsel you seek — make sure their efforts align with your goals.

Visibility is another one of the keys to becoming a prominent acquisition candidate. One of the best ways to elevate company awareness is to become a competitive business within your industry. If you’re not on your competitors’ radar, it’s difficult to create a competitive environment when you are approached by a potential buyer. However, if you are an industry leader, it becomes much easier to generate additional interest in your company.

When you find yourself in a position to be acquired, it is essential that you know what you want to do. There is nothing more frustrating to a buyer than a seller with cold feet. This happens frequently because many business owners put themselves in a position to sell without having put in adequate time to decide exactly what they want out of the sale. In industry terms, this is referred to as “going to the well too often.” If a seller puts themselves out there multiple times only to shy away from a potential sale, investors will not take them as seriously in the future. What’s more, the financial aspects of a deal are often overemphasized in a transaction, so it’s important not to overlook the emotional ties to the company, as well as the organizational and functional aspects of the deal. When approached by a seller, know what you want and negotiate hard for it.

As a business owner, you will find that one great benchmark is to create a legacy, step away from it, and ensure it goes on without you. During your time with the company, building your legacy is a never-ending process. It is the result of effectively leading and managing your staff, thus allowing you to exit your practice when you are ready and then obtain the financial security needed to continue successfully for years to come. If, upon your exit, your legacy leaves with you, this simply means that your vision was not big enough.


Scott Upton is Managing Director and Principal with ICG Capital. His responsibilities cover all aspects of the transaction process from origination to the execution of merger and acquisition and private financing transactions. Since founding ICG in 2001, Mr. Upton has executed greater than $500,000,000 in transaction value and more than 87 transactions. Mr. Upton has advised on numerous sale assignments, buy-side transactions, private placements, and various strategic advisory assignments across a broad range of industries. Mr. Upton earned a Bachelor of Science Degree in Finance from West Virginia University and completed the Program on Negotiation at Harvard Law School. He holds several licenses with FINRA. To learn more, email scott.upton@icgcap.com.

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