Having been through a number of M&A transactions here at Bowery Capital, one of the more important things that we find entrepreneurs discount is the time and intricacies of the signing and closing process. Founders are excited that their company is about to sell and everything that comes with it: wealth creation, strategic excitement, and further growth. Yet many times they discount the small stuff and fail to understand the deal is not done. Below are some considerations that any founder should prepare for once things get down to the final weeks of a closing process. These points can mean the difference between a smooth and orderly process when selling your company or a complete mess, and at worst, a deal falling apart.
1. Smaller Investor Considerations. Convincing your smaller shareholders is an entirely different matter than getting board approval. Remember that random small investor your mom introduced you to that you haven’t kept in touch with? You’ll have to have that conversation before selling your company. Smaller investors take up way more time than professional investors and have 10x the questions. Have waterfalls prepared in advance as everyone wants an idea of how much they are going to get paid before they sign. One stubborn small investor is all you need to kill the deal if the acquirer wants 100% consent. Additionally, sometimes it’s helpful to have a short conference call to explain what’s going on, and then tell them you’ll follow up individually after to address any questions one on one. Oftentimes, a large percentage of the questions are answered here, time is saved, and concerns are alleviated.
2. Day of Month Considerations. Try to close on the last day of the month so you do not have to pay for a full month of benefits, technology, taxes, and other items. You don’t want to take out purchase price considerations to pay TriNet for another month because you closed late? Neither do we. Set the target closing date 2-3 days before end of the month to account for any unanticipated delays. Not doing this will usually result in somewhat of a reconciliation nightmare.
3. Consent Considerations. Get your consents out as soon as humanly possible, especially if they involve someone not directly invested in the company. Remember that landlord that you hate and pissed off a couple months ago by hosting 100 people at your office without her approval? Yeah she won’t have a sense of urgency to get it done and will hold you up for 10 days.
4. Tax Considerations. There are three components that we see come up around tax. First, understand your own personal tax implications as soon as possible (we have seen deals fall apart when founders try to renegotiate equity/cash split once they found out how much tax they have to pay late into the process). Second, are there places where you do business but the acquiring company does not? Those are tax nexus considerations that will come up. Third, are you a software company that does not pay sales taxes? Those are going to come up in terms of back taxes on a state by state basis.
5. Reference Considerations. Get your references in order and make sure they respond promptly (e.g. customer references, professional references for key executives). Don’t have them? You’ll need to get this done well in advance of closing. Provide high-level talk tracks for each of these individuals and make sure you follow up after they speak with the acquirer. While one bad reference is unlikely to kill a deal, you want to make sure you put your best foot forward to the company buying you.
If you liked “5 Quick Tips When Selling Your Company” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.
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