Corporate Law Insight: Maximizing your company's value in a sales transaction

Every seller of a company would like to maximize value and minimize post-closing risks in the transaction, all without disrupting current operations. A seller must be proactive by anticipating areas of concern before undertaking the sale process. A seller who is both adequately prepared in advance of negotiating a term sheet or letter of intent and well-positioned to address questions and issues throughout the sale process will have a greater likelihood of achieving a successful outcome than a seller who overlooks important pre-selling planning considerations.

Here are 12 points to consider in order to achieve the desired result:

1. Prepare Clean Corporate Records. Anticipated due diligence disclosures should be reviewed and updated in advance of buyer's request for information including key corporate, operational, financial and accounting records, and legal documentation.

2. Demonstrate Growth. Preparing a detailed financial model that reviews historical and projected growth at a micro level (and perhaps on a line-item basis) helps to more effectively frame the acquisition opportunities for buyer and support the seller's projected growth on a going-forward basis.

3. Explain Financial Performance. Sellers need to have defensible explanations of the company's financial performance including the ability to explain profitability margin fluctuations, increased costs of operations, costs of sales and selling, general and administrative expenses, and material, labor, and overhead expenses.

4. Show Return on Capital Expenditures. Reports showing anticipated return on investments for each capital expenditure item and the anticipated timing of those expenditures will greatly assist the buyer in confirming its overall valuation of the company.

5. Highlight the Management Team. To the extent the buyer is investing in the management team, sellers should highlight management's experience and its internal assessment of lower-level managers within the organization capable of leading the company in future years.

6. Don't Forget to Run the Company. A sale of the company requires a tremendous amount of time and effort of the senior management team. Management cannot lose focus on achieving the business goals of the company during the selling process.

7. Implement a Confidentiality/Non-Disclosure Agreement. The company should enter into appropriate confidentiality and non-disclosure agreements with any proposed buyer and have appropriate restrictions in place so proprietary information is protected.

8. Negotiate a Letter of Intent. In most cases it is advisable to negotiate the deal terms as much as possible in the Letter of Intent including the material economic terms, ancillary provisions, the period of buyer's exclusive right to perform, payment of fees and expenses, the nature and extent of representations and warranties, and limitations on indemnification obligations. By adequately negotiating the deal terms up front before preparing definitive documents, both buyer and seller can be more assured they are in agreement on the significant business points, legal terms and the respective obligations of the parties, thereby avoiding significant delays and additional costs in the transaction.

9. Provide Employee Incentives. Once employees become aware of an impending sale of the company there may be anxiety, unrest and uncertainty as to their future. It is imperative employees be incentivized so they assist in any planned transaction as opposed to harming the transaction. Incentives may include stay bonuses, payments upon successful closing, improvements to employment agreements and benefits from the buyer, and equity participation, among others.

10. Consider Using an Investment Banker. Identifying strategic and financial buyer candidates, providing realistic information regarding the company's valuation and overall market intelligence are valuable contributions that can be made by an investment banker. Thorough examination of the investment banker's background, including the size and types of transactions it is typically involved with, relevant industry experience and reputation in the community are key factors in the selection process.

11. Seek Tax and Accounting Counsel Early. The type of buyer, type of transaction structure, and type of consideration involved in potential transactions are all matters that need to be reviewed and analyzed by the seller's accounting, tax and financial advisors early in the sale process to ensure potential structuring roadblocks can be eliminated or substantially reduced.

12. Seek Sarbanes-Oxley Counsel. This legislation contains many requirements that may apply in connection with a private company selling to a public company or to a private company contemplating a future public offering. A compliant acquisition target will be a positive to the buyer and may improve valuation.