Category: Buying & Selling a Company

Alternative Investments, Buying & Selling a Company, Exit Planning

Are Private Equity Groups for You?

Gregory Pearl

In recent decades more and more capital has flowed into the alternative investment category of private equity or Private Equity Groups (PEGs). Maybe because of this higher profile, we get asked repeatedly by business owners in the lower middle market if they can sell to a private equity group. I’ll say this right up front – most likely the answer is no. Private equity investments have traditionally been focused on large companies, the so-called middle market and especially the lower middle market have been ignored. That has changed in recent years as more capital has entered this investment category.  Seeking…

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Buying & Selling a Company, Decision Making, Exit Planning

The Bugaboo of Confidentiality

Gregory Pearl

Business owners are rightly concerned that if word gets out that their company is for sale, vendors and customers might get spooked. And the business performance will be hurt thereby hurting the company’s value. On the other hand, “you can’t sell anything if you can’t talk to anyone.” So there must be a happy medium. Where is that? But first, remember that almost always a prospective buyer will need to sign a confidentiality agreement issued by the seller. This is standard and binding on the buyer. Even with an agreement, there are steps that can be taken to help keep…

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Buying & Selling a Company, Decision Making, Exit Planning

Why Confidentiality Is Important

Gregory Pearl

Selling a business is a strange mix of advertising – communicating – that the business is for sale and keeping the whole process confidential. Confidentiality is very important. If word gets out that the business is for sale, people will start to question if they can rely on it. The whole uncertainty surrounding a sale may hurt business performance, thereby resulting in a reduction in the sales price. The conclusion: To get the maximum amount for your business in a sale – keep everything confidential. Here are some of the problems that can arise if word gets out that your…

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Buying & Selling a Company, Decision Making, Exit Planning

Walking Away After A Business Sale Can Be Difficult

Gregory Pearl

Many sellers want to sell their business and walk away. Be done with it. But most of the time there will be a transition period where the seller must stay on, after the sale. The length of time and nature of the seller’s ongoing engagement depends on a bunch of factors. This includes the nature of the business (e.g. service business), the size of the company, and the role the owner had in ongoing operations. From the buyer’s perspective, it is good to keep the seller on for a while to help with introductions to employees, vendors, customers, etc., and…

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Buying & Selling a Company

What is a Letter of Intent?

Gregory Pearl

The Letter of Intent or LOI is the cornerstone pre-contractual document given to the seller by the buyer that summarizes the understanding of how a transaction will occur as of the date of the LOI. A Letter of Intent can also be called a Term Sheet, Memorandum of Understanding, or Agreement in Principle.  No matter what it is called, the meaning is the same. The LOI will describe what exactly is being purchased and the terms of the transaction. The LOI is non-binding, meaning that is pre-contractual and is really just a way to move the transaction closer to a…

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Buying & Selling a Company

Business Sellers: Beware Due Diligence

Gregory Pearl

Many business owners think that selling their company is simple – “clean” it up a little, find a good intermediary, and then wait for the offers. But it is not that simple. There is something called the “due diligence” phase. Buyers want to know what they are buying. They want full disclosure. No surprises. That’s what buyers use “due diligence” for. Eliminate the surprises. The due diligence phase can last from one to three months. Maybe longer, it depends.  The best way to speed the process along is to have all the information that a buyer would want to see…

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Buying & Selling a Company

A Warning About Due Diligence

Gregory Pearl

The due diligence phase of a transaction can haunt the seller of a business in many ways. I wrote about this earlier, but it never hurts repeating. The best way to avoid problems during due diligence is to reveal all of the company’s problems right away. As soon as possible. Of course, the seller should have good explanations as to why the issue is not a big deal or a problem. Why it can be managed. But especially don’t let the buyer find out on their own. Not all due diligence issues are financial (though that is very important). Some…

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