We’re often asked what advice we’d give to business owners that have an exit transaction on the horizon. Our answer? It’s never too early to begin preparing. Below are a number of key preliminary steps that a private company positioning itself for sale can take in advance of the formal start of an M&A process.
- Assemble your team: Consider who you will need on your team both internally and externally, and engage the team early. Even before you identify a buyer and have a draft acquisition agreement, your advisors can add value. Your accountants can help you consider the structure of the transaction and prepare the company’s financials for review by potential buyers. A broker or investment banker can help to maximize transaction value as well as prepare marketing materials, solicit and coordinate with multiple bidders, and help guide you through the due diligence process. Your lawyers can help you determine the best structure for a transaction, advise on preliminary agreements such as non-disclosure agreements, and help you navigate the pre-sale process.
- Proactive clean-up: Address any corporate record-keeping gaps. The time spent on clean-up on the front end will simplify the due diligence process and speed up the overall transaction timeline. For example, make sure all material contracts have been signed by all parties, and double-check that all equity grants (including options and convertible debt) were clearly authorized by appropriate approvals and grant documentation was signed and dated. In addition, make sure you have complete and accurate capitalization records.
- Prepare for due diligence: To help a future buyer more efficiently complete its due diligence, organize the company’s records and information by subject matter (i.e., organizational documents, capitalization, operations, indebtedness, IP, employees/benefits, marketing materials, real property, material contracts, etc.). This will allow you to respond to due diligence questions and requests more easily and will help create an organized due diligence data room.
- Anticipate areas of focus: Anticipate the areas of your business that will provide the most value to a buyer and prioritize those areas by making sure you have complete records and documentation and consider engaging an advisor to help with this. For example, if your main asset is intellectual property, work with IP counsel to make sure you have valid rights in that IP and all documentation needed to give a buyer assurance of those rights. As another example, if you are in a highly regulated industry, work with regulatory advisors to address and get ahead of any potential regulatory issues.
- Consider transaction structure: M&A transactions can be structured in many ways, and often tax considerations determine the optimal structure. Reach out to your tax advisors to discuss your company’s and equity holders’ tax attributes and the advantages and disadvantages of various transaction structures so that you are prepared for discussions about structure with potential buyers.
- Plan for approvals: What approvals are required for an exit – board, shareholders, landlord, key customers or suppliers? Try to anticipate any needed approvals that could delay or prevent you from closing the transaction and have a plan for how you will seek and ultimately obtain those approvals.
- Charitable and estate planning: If you desire to make any charitable donations or do any estate planning in connection with a sale of your business, connect with tax and estate planning advisers well in advance of your exit to allow time for proper planning. Waiting to address charitable and estate planning can result in limited planning options or delays in closing the sale transaction.
If you have questions about preparing for an exit or any M&A matters, feel free to reach out to any Wyrick Robbins attorney in our M&A Practice Group.
Christie A. Hartinger is an attorney in the M&A Practice Group of Wyrick Robbins Yates & Ponton LLP, which represents clients across a broad range of industries in connection with their significant corporate transactions. The group publishes Practice Briefs periodically as a service to clients and friends. The purpose of this Practice Brief is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.