Valerie Mann: Managing partner, Lawson Lundell LLP
A merger is a big step in a corporation's life. If you're selling, it's an opportunity to take money off the table if you're an owner and perhaps provide for continued growth or expanded opportunities for the business. If you're buying, a merger can give you access to a broadened geographic reach, product offerings or channels of trade. If you're considering a merger, though, there are a host of issues that you need to consider.
Timing is critical. The best time to sell is, of course, when your company is thriving and the economic climate is right – and even better, if your industry is in demand. That does not always work if there are other drivers to selling a business, so discuss that with your advisers. There are different strategies to undertake when you're selling in a more challenging market.
Be ready. Having a company that is ready to sell will add value. Make sure that the company has looked at its records, understands where it might have challenges in its reporting, copies of contracts, any difficult relationships with customer or suppliers. Discovering issues in the middle of a third-party review inevitably means a cut in value. Be mindful of who knows about a potential merger, when they will be advised and how you control information flow. A merger can be an unsettling unknown for employees, customers or suppliers.
Give it time and resources. Never underestimate the amount of time that a team will need to dedicate to a merger process. It can distract you from running the business. At the same time, it's important to stay actively involved. Experienced advisers can be instrumental in getting through the maze of a merger, but a founder/seller's continuous involvement in the process will ensure that the deal is progressing in a way to meet your expectations.
Ron Hooge: Director of valuation services, Smythe Ratcliffe LLP
There are many things to consider before buying or selling that can't be addressed in this small space. It's often a topic addressed in day-long seminars. Deciding to sell a business can be the most significant decision that a business owner makes. Of the various factors to consider, an important objective of the seller is to maximize the value of the business. The determination of price boils down to the expected future performance of the business and the risk associated with achieving the desired financial results.
Often, the key value drivers include:
•Quality of financial performance. What is the risk that the business will not be able to meet historical performance? Does the business rely heavily on a small number of customers or suppliers? Is there a way to diversify?
•Accuracy of financial forecasts. Is there a budgeting process in place to prepare reliable financial forecasts?
•Competitive advantage. What makes the business better than its competitors? Can the elements giving the business a competitive advantage be protected (e.g., intellectual property)?
•Depth of management team. Are the necessary personnel in place to keep running the business successfully after the owner leaves? Can high dependence on the owner be decreased?
•Hidden liabilities and commitments. Are there any unresolved issues that could scare off a buyer?
Entering into discussions for a merger or acquisition is a complex process that can take years to complete. For a successful transaction to occur, all of the above factors need to come together at the right time for all parties involved.
Pino Bacinello: President and founder, Pacific Mergers and Acquisitions Inc.; chairman, Small Business BC
Whether you're considering selling your business or buying one, there are many moving parts to consider. The use of knowledgeable and professional advisers is one of the obvious keys to a successful sale or purchase of a business.
As surreal as it might sound, a successful sale or purchase is where both sides meet their objectives to a reasonable and acceptable degree.
On the "sell" side, it's critical that both the business and the seller are ready to sell.
For the business to be ready, one should be clear on such things as consideration of assets being sold, value and its drivers and sale structure.
For the seller to be ready, it is paramount for one to consider such realities as current economic times, forward room or years left in one's desired or effective working life, what is transferred as part of the sale to a buyer versus what is retained by or left for the seller and post-sale tax and lifestyle implications.
On the "buy" side, subject to whether one is a strategic, synergistic or what we call a "Main Street" buyer (typically non-strategic, or non-synergistic, and in most cases an individual), there are various considerations. These include affordability, financing, the "free cash flow" or actual sustainable money available to the owner, management and key personnel that might be in place or that would be required, available growth opportunity and the (often not considered at Main Street levels) required working capital.
There are many other considerations that need to be taken into account in consultation with the appropriate knowledgeable, experienced and professional advisers – and that is the common thread in a successful sale or purchase of a business.
