Money Games: Sell Your Company Now

14 Final Offer

The final binding offer may be different to the indicative non-binding offer, depending on what happens during due diligence. Some buyers may want to renegotiate at this stage, so you should be clear about the point where you will walk away from a deal and your best alternative. There are as many different structures as there are different deals, but it is usually best to agree the simplest deal possible. Nonetheless, you may see:

• Earn out, where part of your payment is deferred based on the performance of the business
• Convertible preferred stock, which gives the buyer a preference over the common shareholders in the event of a liquidation or merger, and is convertible into common stock in the event of an IPO
• Participating preferred stock, made up of preferred stock and common stock. The preferred stock gives the buyer a predetermined amount (the original investment plus accrued dividends) on sale or liquidation of the company plus common stock. As with convertible preferred stock, it also converts to common stock in the event of an IPO
• Convertible notes, which are debt instruments which require the company to pay interest prior to exit, when the debt converts to equity in the company
• Senior debt, which has higher priority than other loans or equity in case of a liquidation
• Subordinated debt, which has lower priority than senior debt on liquidation
• Mezzanine debt, which is lower priority than senior debt with a higher interest rate and may include warrants
• Warrants, which give buyers the right to purchase shares at a pre-determined price. They are usually issued together with preferred stock or debt
• Options, to buy or sell shares at a specific price within a specific time period to incentivise management and staff

15 Close the Deal; Receive the Money

If you reach this point, then you have done very well. Make sure that the money is actually in the bank before you go out to buy that Aston Martin.

Other Tips

Post the Deal

Depending on the structure of the deal, you may be required to stay with the company for a specific earn out period. If you retain a significant amount of equity in the company, you will probably want to stay with the company until it is sold again.

Rule of Thumb on the Process

If you contact 80 buyers with your teaser, 20 may ask for the IM, 5-10 may ask for a management presentation and 0-5 may actually make an offer. You may not need to contact anything like this number of potential buyers (and again the best way to sell a company is to be bought), but ultimately selling a company is a numbers game.

Who does what?

With the exception of the legal documentation, if you have substantial experience of selling companies you could conceivably try to do everything yourself to save a little money on advisory fees. It can be a high risk approach, can consume substantial amounts of management time, and isn't recommended unless you have done so successfully before.

If you don't have experience at selling companies, you risk either wasting your time or ending up with a deal which doesn't work for you. This happens to the smartest of entrepreneurs, because selling a company successfully requires a certain amount of experience. This may come in the form of a member of your team or one of your board members who has sold companies before, or in the form of a corporate finance adviser such as an investment bank or accounting firm.

In either case, be sure to do your own due diligence on the people or organisations who are going to help you, as asking the wrong person to help is worse than no help at all. No matter who helps you with selling your company, you need to be on top of the sales process from start to finish. While this may distract you from running your company, selling your company in the wrong way can destroy much of the value you have created.

Still Want to Sell Your Company?

If you've made it this far, and are still convinced that now is the right time to sell, then I wish you the best of luck. Put together the best team around you that you can afford, and to misuse Shakespeare: "If it were done when 'tis done, then 'twere well it were done quickly."