How to Position Your Company for an Investment or an Exit

By Edward A. Shapiro, Esq.
Burns & Levinson, LLP

Once a decision is made to seek an investment in a business or to sell it, an owner should, sooner rather than later, prepare for the transaction. Being prepared will increase the price, minimize complications, and produce the best results. To be prepared, anticipate the following needs and/or expectations of seller and buyer:

Due Diligence - expect buyer to examine all aspects of the company. Get the company's house in order.

Revalue the assets - revalue the assets, on and off balance sheet, of the company. The depreciated book value of the assets may be far less than their fair market value. Off balance sheet items could also have significant value.

Reduce Expenses - the price is usually a multiple of earnings. Thus, the higher the profits, the greater the price. By reducing discretionary perks and salary to owners, and capitalizing expenses, expenses are reduced and profits will increase.

Accumulate Leveragable Assets - it is easier for buyer to pay seller's price if there are assets that can be used to raise cash.

Real Estate in the Company - spin off real estate prior to the transaction. Most Buyers do not want to waste capital on real estate.

Intellectual Property - create a paper trail to verify ownership of I.P. in the business. No Buyer will pay a premium for I.P. if there is a question about ownership.

Terminate Bad Agreements - no buyer will buy a seller's problem without a substantial discount.

Extend Valuable Agreements - a valuable agreement is a valuable asset for which a buyer will pay a premium.

Team of Advisors - pick a team of advisors who are "deal makers", not "deal breakers".

Top of Your Game - sell the company on the way up.

Be realistic - set realistic expectations.

Noncompetition Agreement - Be prepared to sign a non-competition agreement. Will the Sellers get enough out of the transaction to maintain the accustomed style of living?

No Employment Agreement - Don't expect buyer to commit to a long term employment contract.

Spring 2003 -Volume 13, Number 2

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