To Sell or Not to Sell

I made my money by selling too soon.
— Bernard Baruch
To Sell or Not to Sell | Sale Paperwork

Most every entrepreneur has the dream of starting, building, and ultimately and selling a company or taking it public. Oh, what a feeling it will be, to receive the wire transfer, to read about it online and in the press, and to have friends and colleagues talk about your incredible success. The VCs who would not take your calls a few years ago are all lining up to give you money now. You are being asked to speak at all sorts of conferences. People come up to you and ask for your card. 

And the money. All the things you will do with that money. In many ways, you have already spent that money in your mind, given it away, and let’s not forget the sports car. You join the ranks of the super angels and start rubbing shoulders with other successful entrepreneurs and executives. You start getting invited to amazing parties. You are even more attractive all of a sudden, as women throw themselves at you. You are golden.

But first, you have to have a successful exit. And that is not an easy endeavor. As Warren Buffett said, 

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

The best companies are bought, not sold. But how do you create a liquidity event without selling a company? Again, as I have mentioned numerous times, it starts by making sure you have the best team possible. That includes your employees, services provides, and advisors. Next, you have to make sure your company is gaining traction in a specific area to a point where everyone realizes the emergence of a new strong player. Therefore, establish your leadership position, whatever it may be All effort should be made to ensure in bound interest. 

That’s why very intelligent PR, industry awards, and community involvement are so important. You want your success to be known. Not your secrets, but your success!!!

The best buyers know the companies they are buying either though strategic partnerships, business development agreements, or strategic investments. A buyer that is willing to pay a premium for a business does so because it is accretive for him to do so. So what may seem like an outrageous price may actually be a bargain for the right buyer. Remember price is what you pay. Value is what you get.

But even that specific buyer, willing to pay the extra premium, has to know that there is someone else around the corner that is willing to do the same, or else why should they spend all the money, when they can get the same benefits with very attractive agreements. And thus the importance of running a process, and getting multiple competitive bids at the table. 
Given that, the basic parameters during a sale are:

  • Price 
  • Terms & Conditions
  • Reps & Warranties
  • Employment Agreements
  • Timing

Most people are familiar with these terms. Additionally, you should consider the integration plan, and necessary regulatory approvals, as well as breakup fees.

Smart entrepreneurs have the best advisors. You should always try to have the best accounting and law firms represent you. You should try to retain, for cash or equity, the best retained search firms for your specific industry. And when the time is right, hire the best M&A advisor to run your process and negotiate terms. Not only do they provide valuable advice, they are well connected, and can give you intelligence that can make a significant difference during a process.

Also being a “clean” company really helps. That means keeping a clean cap table, financials, company information, etc. The ability to answer detailed questions in a timely and professional manner during a transaction adds to the credibility, and thus valuation. Additionally, through the process, there are several things to keep in mind to maximize credibility:

  • Know you competitive landscape,
  • Have a deep understanding of the strategic buyers in your segment, their previous acquisitions, cash reserves, and current needs,
  • Do the analysis of the trends in the market, premiums, etc.,

Remember, companies that are solid businesses and doing well get higher premiums, because they do not have to sell. In fact, they will be worth more in 12 months, if all else remains the same. 

Success has a way of attracting success. So good luck on your journey to sitting on a pile of money …

Ivan Nikkhoo