A Deal Team Key For Sellers

OCEAN CITY -- It may seem improbable given some of today's financial headlines, but the deal market for small and midsize private companies has come to life, and many entrepreneurs who've spent decades building companies are taking advantage.

Last week we look at the buyer side and this week we will look at some aspects of the selling side to consider.

There comes a time, early in the process, when the owner needs to hire a deal team — best practices suggest putting one in place as much as 18 months before going to market — comprising an experienced accountant, an M&A lawyer and an investment banker. This might seem like an optional expenditure, but consider what most sellers are up against: a battery of seasoned PE dealmakers or corporate negotiators sitting on the other side of the table. "Financial and strategic buyers don't want to compete for a business; they want the best deal they can get in order to maximize their returns," says Karl Bovee, senior vice president, Enterprise Client Coverage at Bank of America Merrill Lynch.

It may seem counterintuitive, but business owners are almost as likely to underestimate the value of their companies as overestimate them, warns investment banker David Vorhoff, managing director of McColl Partners. "Entrepreneurs often think they know who the best buyers are because they're in the same industry or they've knocked on the door," he says.

If the bottom line is getting the top price for the business, the name of the game is the auction. And that's the true service the investment banker provides: attracting enough prospective buyers — and conducting the due diligence that this makes necessary — to best position and maximize the price of the company.

Though wealth transfer goals should be addressed before a sale is even on the horizon, the next make-or-break moment comes during actual negotiations with a buyer. That's because the specific structure of a deal — whether it's a stock sale or an asset sale, for example — will directly affect the tax bill. Tax liabilities are typically higher with the latter, but a well-negotiated asset sale can be right, if, say, the buyer offers a price high enough to offset the seller's tax exposure. In the end, the sale — like the business — will be one of a kind.