A potential business sale transaction can be an exciting time for a business owner. The sale represents pay-off for all the hard work over years or even decades. However, it’s seldom a simple process. A successful M&A transaction requires its own hard work, and typically takes many months of preparation.
We were proud to recently represent Portland based, family-owned Malarkey Roofing Products, in a $1.35 billion deal with The Holcim Group, based in Zug, Switzerland. The sale represented a great outcome for the founding family, and an excellent opportunity for the business to continue its growth. The acquisition was completed in February 2022. Malarkey, which makes sustainable, high-performance roofing shingles and has over 400 employees across three locations, was founded by Herbert Malarkey in 1956.
Successful M&A transactions like Malarkey’s begin by transitioning the outlook of business owners from an operational view to a transactional view. Instead of thinking like an owner, they need to think like those who will play a key role in the deal. Potential buyers, and employees of the business, are two primary constituents.
Think like a buyer
As a starting point, owners should look at their business through a buyer’s eyes. Remember that operational issues that no one really thinks about day-to-day may trip up a buyer. Do you have current signed agreements in place? Or are you working on expired agreements or handshake deals? Do you have a properly executed, long-term lease for your primary operating facility? Buyers will want current, signed agreements with counterparties.
Similarly, do you own your intellectual property (IP)? Do you infringe on the IP of others? Is your IP protection program truly robust, or do you have employees and contractors without IP assignment agreements? Buyers will want minimal ambiguity.
If you have a pending business dispute or a regulatory issue, resolve it, if possible, before moving toward a business sale. An unresolved dispute may make a buyer uneasy.
These are just some of the potential operational considerations—each business will have its own set of issues to be identified and addressed.
Think like an employee
It also makes sense to consider employee incentives before you move toward a deal. The business sale process is often burdensome; employees without the right incentives may begrudge the additional work and have concerns that, upon completion of the sale, they may not have a job.
For those employees who will be responsible for the continuation of the business, the new buyer will be their boss, not you. These potential conflicts of interest between owners and employees are often overlooked but are very real. For example, management employees sometimes “jump the fence” during a business sale transaction and begin to promote the interests of the buyer. This is typically because these employees felt underappreciated or undercompensated. Unhappy employees, particularly key managers, can kill a deal.
Get organized
Successfully completing the sale of your company is data intensive and requires substantial organization. Buyers will require a variety of essential documents. Setting up an electronic “deal room” specifically for the transaction early in the sales process can help you avoid crisis mode and maintain deal momentum.
A deal room helps you organize and store all the essential documents anticipated to close the deal. A side benefit for many companies is that the collection of a comprehensive set of current corporate records often provides immediate operational benefits, such as deeper understanding of company equity structures, tax planning opportunities, IP weaknesses, indemnity exposures, and other business issues.
A deal room is also efficient during the sales process, particularly if you have several interested buyers. You can control access to your corporate, financial, and operational information on a user-by-user, file-by-file basis.
Why go to such lengths?
Thinking like a buyer, methodically cleaning up any outstanding issues within your operations, and providing complete documentation will put you in good position to negotiate the best deal price and terms. Thinking like an employee can keep your transaction from being derailed in the negotiation process.
If you don’t take the time, buyers gain leverage. A buyer can use unresolved or ambiguous operational issues to justify a lower price or other less favorable deal terms. Good preparation helps generate a top-dollar offer for your company and makes it much more likely that your transaction will close quickly and efficiently at the highest price.
Jeffrey Cronn is a partner at Tonkon Torp with a practice focused on M&A, corporate and business matters, and equity ownership disputes. He can be reached at 503.802.2048 or jeff.cronn@tonkon.com.
