Many of the posts on this site involve discussions about selling a business. The last few posts have been about selling a business unit that is part of a larger company. A divestiture.
Selling a business and divestitures have both similarities and differences. But maybe more similarities than differences.
Here are some common pitfalls that apply to both.
Not being familiar with the process. Senior managers and equity stakeholders may not recognize the amount of work required to conduct a successful sale or divestiture. The tone for the project must be set early on and those managing the project need to have the mindset that this is a major project requiring significant technical expertise.
Related to the above, is not having a formal process in place. Selling a business – whether freestanding or a business unit – is an infrequent occurrence for most managers. A process needs to be in place. If the organization is familiar with the acquisition process, the sales procedures can be almost a mirror image of the steps taken for an acquisition. For example, rigorous due diligence should be done upfront by both the seller and the buyer. The seller should do their work before listing the company for sale. There should be no surprises. This is far more detailed and intensive than just a mere strategy review. However, too much due diligence may signal that the business is for sale to employees and others. That is something to be avoided.
Selling a business is a time-consuming and resource-intensive process. The seller needs to commit the proper time and resources to make the project a success. If internal managers are needed to work on a divestiture or sale project, it needs to be worth their time and effort to do so. For the seller – don’t make the project seem like a dead-end to those people you need to make it a success.
When developing the sale materials, customize the documents to emphasize the strategic fit to the buyer. While the business may not be a fit for the seller, for the buyer it should be. Tell them about that.
The seller should do everything possible to prevent “trailing liabilities” due to reps and warranties, etc. Avoid the “clawback.” Know what post-closing and transitional responsibilities you will want to have before entering negotiations. Many of these issues can be eliminated or anticipated through careful planning.
If the deal breaks down during negotiations, have a backup plan. Know when you are ready to walk away from the table and stop the process going forward. But also know where you are willing to be flexible to move the deal along.
Perhaps most importantly, have a sense of urgency about getting the deal done. Once the sales process begins with a prospective acquirer, get it done as quickly as possible. The more complex deals take longer to finalize. Keep it as simple as possible. The longer it takes to get to the closing meeting, the less likely the deal is to materialize.
