The Loudest Voice About the Sale of Your Company

Who gets a say when it’s time to sell your company?

• You?
• A key employee?
• Members of your family?
• A minority shareholder?

In the case of many businesses, some or all of these people have input about the sale of a business.  How does a business owner handle all these potential interest groups?

With care and forethought.

Having the right process and the right approach to managing shareholder expectations is essential in mitigating risks associated with shareholder buyouts and disputes.

Here are some important factors to think about.

SHAREHOLDER COMMUNICATION

Deploy best practices in communication – conduct regular board meetings and shareholder meetings to establish ways to communicate key issues to stakeholders. We have often observed that these “corporate formalities” get sidelined.

Shareholders’ interests stay aligned, especially during high stress challenging situations, if there is a well-established practice of regular and structured communication.

SHAREHOLDER/PARTNERSHIP AGREEMENT

This critical piece of documentation defines the structure of the organization and how decisions are made. It outlines how all owners are treated, including minority shareholders. However, we often come across scenarios where businesses do not have the proper company agreements in place or agreements become stale.

It’s important to layout upfront for all shareholders what they can expect about such things as company disclosures, buyout/buyback mechanism, as well as decision-making. This is particularly important when selling your business and ensuring shareholders feel they have been treated fairly and transparently.

INTRA-FAMILY ISSUES

There are often multiple and complex relationships and obligations in a family-owned company – regardless if those family members are actively involved in the business or not. To mitigate this complexity, family members should consider moving their ownership interest from being directly held in the business to a trust, and the company should move toward professional management.

Intra-family questions and issues should be addressed well before the sale of the company.

DUE DILIGENCE

The concept of “maximizing value” is multi-dimensional – it includes not only the price paid for a business, but also the terms of the transaction and the timing. Each company shareholder has a different priority and agenda when selling the business.

Implementing an intentional process to the sale of your company ensures that you’ve fulfilled your responsibility to stakeholders. This includes getting an outside business valuation, working with an investment banker so that you’ve considered all potential buyers, and getting a fairness opinion.

FORMS OF COMPENSATION

Management and employees may not be shareholders in your company with legal voting rights, but they can materially impact the success of any transaction. Keep in mind that if there is an earnout component to the transaction consideration, pay particular attention to the successful transition of the company post transaction.

There are many compensation methods: a stay bonus, phantom stock, profits interests, etc. to incent management and key employees.

The key is to do the planning and corporate documentation upfront and engage a tax professional, attorney, valuation expert and IB professional to figure out the most favorable structure.

Before you go to market, understand the different interests and needs of all parties with a stake in the sale. Have the dialogue with interested parties, working on the agreements before the business is sold.

Have questions about how good planning affects the value of your business? Quist Valuation can help. Let’s set a time for a free 30-minute consultation. We can discuss the specifics of your business and identify the next steps needed to assess the value of your company.

Schedule your free 30-minute consultation here.