This is article two of four in our series, “Navigating & Optimizing the Sale of a Private Business – The Definitive Collection.” In Part I, we explored personal well-being strategies as a core foundational element to executing your M&A transaction.

In Part II, we address a second foundational element of the sale process – defining key goals and objectives. Properly calibrating a plan utilizing a set of clear and attainable objectives and goals is key to success and is a continuation of your preparedness strategy, playing in tandem with the elements in Part I and vice-versa. This edition is written to assist your thought process as you approach your planning and goal setting in order to ensure success from a position of strength.

Steven M. Rathbone – Vice Chairman & Managing Director, Investment Banking at Stout – shares his 20+ years of M&A experience, having advised some of the nation’s leading private companies, founders, families and investors, in offering a definitive guide via a collection of experiences gained over dozens of complex transactions.

Clearly Define Your Goals

Defining and prioritizing your goals clearly and concisely is a key milestone which will best prepare you for guiding your advisors and for aligned engagement with investors during the sale process. In outlining your goals, you should always aim to address:

• Shareholder(s): Consider the breadth and priority of objectives of the shareholder or the shareholder group. Are you seeking maximum financial returns, a smooth transition, a specific deal structure, the ability to reinvest with a growth partner, to target a closing by a certain date, the continuation of a legacy, a combination of these goals and more?
• The Company: Reflect on what you envision for the future of the company post-sale. Are you seeking a buyer or investor who will invest in growth and innovation, maintain current operations, expand organically and via acquisition, tap new markets, offer new services or sell new products, or merge the business with a peer or larger entity?
• Management and Employees: Consider the impact of the sale on your management team and your employees. Are you committed to preserving jobs, providing continued opportunities for career advancement, enabling and promoting the management team as you transition out, offering retention incentives and wealth-building opportunities (via equity or equity-linked instruments) to your team as part of the transition?
• Community: Many private businesses play a truly important role within the community that they are located, and to those they serve. Are you committed to maintaining charitable initiatives, supporting local schools, and supporting local suppliers and customers? Do you employ family members of existing staff or multi-generational families? Are you looking to minimize environmental impact? How critical is your company perceived within the community and how will a change of ownership impact this standing?
• Legacy: The transition of a private business to the hands of new ownership raises the question of legacy and leaving an indelible impression on all stakeholders of the business, over time. Reflect on how you, your family, and your partners wish to be associated with and a part of this legacy. Are you focused on preserving the company’s heritage, innovation, or influence on its industry? Have you participated extensively in industry groups and events, and do you envision continuing to do so post-sale? How are you and your company regarded in your industry and how do you see this evolving?

Shareholder Goals

Within any business with more than a single shareholder, shareholders may have competing or contrasting objectives. Understanding and balancing these priorities throughout the sale process, while at times challenging, will help with execution of an efficient process and finding the right deal via coordinated investor interfacing.

Financial Returns

Very commonly, shareholders are looking to capitalize on their investment and achieve the highest possible valuation for the company, creating a robust return on capital. This will involve seeking out buyers who are willing to pay a premium or exploring strategic options that unlock additional value, often in the form of post-integration synergies. A robust, well-executed sale process is also a necessity.

Ownership Transition

Certain owners wish to prioritize the quality of the transition of ownership, especially if they have a long-standing relationship with the company or a deep sense of loyalty to its mission, vision and core values. Such shareholders may be concerned about finding a buyer who shares their vision for the business and is committed to preserving its culture and legacy well beyond the transaction.

Company Legacy

Many owners are driven by a desire to continue the company’s legacy or pursue specific strategic objectives over time. They may be looking for a buyer who can provide the resources and expertise needed to take the business to its full potential, while staying true to its founding principles and building on an already-great legacy.

Quality of Life

Some shareholders may wish for a buyer that can facilitate quality of life enhancement by enabling them to step back from their involvement in the company on a shortened timeframe, so that they may pursue retirement, time with family, charitable activities, or other ventures.

Balancing Competing Priorities

Navigating this requires careful consideration and communication between shareholders and the company’s M&A, legal, and accounting advisors. It further involves identifying potential buyers who can acquire the business with such principles and priorities of the selling shareholders at the forefront of their negotiation strategy and philosophy, while bringing a degree of flexibility to discussions to accommodate a wider spectrum of selling shareholder objectives. This typically entails a thorough understanding of the buyer by the M&A advisor, and the conducting of thorough due diligence to assess a buyer’s track record, business philosophy, and achievement of longer-term post-acquisition objectives on prior deals.

Company Goals

Beyond shareholder goals, defining specific goals for your company’s future after a deal can help you identify an investor or buyer who shares a similar vision and set of core values.

Growth

A focus on continuous growth and implementing new initiatives can appeal to buyers who prioritize innovation and market adaptation. Highlighting a commitment to innovation can attract strategic buyers looking for expansion opportunities through partnering with nimbler, growth-focused businesses with specific advantages. Knowing which pathways for future growth align with your own objectives, and positioning your message accordingly, can help sellers confidently transact with a like-minded party.

Operational Stability

Buyers of quality businesses uniformly favor those with established operational frameworks and loyal customer bases. Stressing and demonstrating the stability and reliability of current operations can mitigate perceived risks, instilling confidence in buyers and aiding in value maximization.

Diversification

Diversification opportunities into new markets, services, or products can broaden a company’s appeal, as it demonstrates an untapped growth potential. If you see these as a vital goal for your company’s future, showcasing your business’ ability to capitalize on emerging trends can help you appeal to a buyer who feels the same.

Employee Goals

Business owners tend to have a deep commitment to their employees, a key consideration when thinking about selecting the right buyer. Identifying growth and advancement opportunities for employees post-sale is a key element toward finding a buyer that will value your company’s unique culture and committed employees while de-risking the personnel and operational elements in the organization.

Employee Wellbeing & Job Preservation

A major priority is preserving jobs and employee well-being post sale. Emphasizing the importance of job security during negotiations and seeking assurances regarding the buyer’s intentions to retain the workforce post-sale are key. This can be likewise accomplished working with a talented M&A attorney who can draft contractual terms around these elements. Your M&A advisor should engage with buyers who value employee morale and the existing talent pool and appreciate your efforts to de-risk and maximize the impact of their investment in your business.

Career Advancement

Beyond preserving jobs, some owners may want to ensure employees can grow their careers within the company after a deal. Engage in discussions with prospective buyers about their plans for talent management, seeking a buyer that provides employees with clear and defined avenues for advancement post-sale.

Management Team Empowerment

Empowering the existing management team to lead effectively through the transition and beyond may be a key goal. Collaborating with buyers to outline roles and responsibilities for key executives will aid in ensuring a smooth transition of leadership.

Retention Incentives & Program Implementation

If you are committed to aligning employee interest with the company’s long-term goals and retention efforts, you may want to implement retention incentives such as transaction bonuses, profits interest unit programs, option pools, and/or equity participation as part of the transaction.

Discuss with your investment banker, M&A counsel, and potential buyers the possibility of structuring incentive plans or ownership opportunities for employees. Cite it as a key objective in your transaction planning. In turn, foster a sense of ownership and commitment among the workforce while easing the transition and making it lucrative for key persons, while maximizing value.

Community Goals

As you prepare for the sale, evaluate your business’ position in and influence on the community, as well as goals you have set for your company within the community.

Local Causes

If you are committed to supporting local initiatives and social causes, make this clear. This may also include supporting local suppliers or customers. Buyers who prioritize community engagement and philanthropy are more likely to appreciate the value of your business and culture and will value this accordingly.

Family Dynamics

If your company employs multiple members of the same family(ies) or has multi-generational families in its employ, this is a reflection on how you and your business are respected and appreciated in the community, and clearly an element which supports your positioning as a leader who “walks the walk” when it comes to culture and community. This can attract buyers who value the stability, continuity, and familial relationships within the business and see it as a sign they are buying a best-in-class company.

Sustainability

Your company may be committed to minimizing environmental impact and a commitment to sustainability. Buyers and their shareholders and boards who share these values are more likely to appreciate the long-term benefits of your sustainable business and may be willing to attach a premium to the deal. Such buyers are also likely to prioritize implemented sustainability practices going forward.

Local Perception of an Ownership Change

Evaluating the perception and impact of change in ownership within the community provides insight into stakeholder sentiment and concerns. Identifying buyers who value community and their company’s reputation within it enables you to include terms that prioritize the interests of everyone involved as it pertains to this element.

Legacy Goals

Selling a business often prompts founders and owners to reflect on their legacy. Entering into a transaction that positively affects its industry, employees, and community for years to come is often paramount. Such a vision can attract buyers who can identify intangible value in the company’s reputation and long-term outlook, maximizing value.

Participation in Industry Groups and Events

Your legacy may include involvement in industry groups and events and your vision for continued engagement post-sale. Buyers who value industry connections and thought leadership are more likely to recognize the intangible assets you bring to the table beyond financial metrics, attaching these to the culture and reputation of the business they are buying. Your continued involvement in industry groups post-sale may also contribute to the ongoing success and unhindered continuity of the business’ key relationships under new ownership.

Industry Reputation and Standing

If you’ve built a company known for excellence and integrity, you are very likely to be devoted to continuing it post-sale. Buyers who recognize your company’s reputation and industry standing are more likely to view it as a valuable and attractive investment opportunity, which will reflect in both real value and malleability of negotiations around key terms. Leveraging your industry standing can help attract buyers who seek to build upon this legacy, uphold the company’s reputation post-acquisition, and further grow their own brand and reputation.

Making Your Objectives Known

As you go through the delicate and detailed process of outlining your goals and objectives, consult those who have been here many times before and make it their profession: your personal network and fellow executives, your M&A advisor, attorney and accountant. Different perspectives and input from experienced professionals will make a material difference in your planning and will assist you in developing a clear and collaborative set of objectives and a roadmap with which to approach your transaction.

This process should place you in a position of ownership and thus confidence in your approach. As we all know, when you are in control of a well-structured plan, the probability of success increases and the stress meter dials down several notches.