Categories: Strategy

Positioning Your Business for Sale

While the M&A space is very frothy with transactional volumes at record levels and premium valuations abounding, the risk associated with getting deals done might just also be at an all-time high. Ideally selling a business should really be about taking what the CEO believes is the best deal, however lately it has become more about doing the deal that the CEO perceives as the most defensible transaction when evaluating the impact of the sale on a variety of constituencies. In today’s post, I’ll share my thoughts on getting the right deal done with the least amount of litigation risk

Okay, so you’ve received board approval to put your company it plays, but now what? How do you cover all your bases in an attempt to mitigate the risk of regulatory scrutiny and shareholder litigation?

Taking the following steps will not only help you maximize transaction value but will likely ensure that the transaction sticks with the least amount of post-transaction risk:

  1. Pre-sell the deal internally: State your case early on by clearly articulating the business logic for the disposition. Make it known why selling benefits various constituencies and lay-out your game plan to the board, key executives, major shareholders, etc. If you are pursuing a strategic deal that you believe may be in the best long-term interests of shareholders, but may not maximize current valuation you should definitely trial balloon your thinking very early on and build key support for such a decision. By assuaging potential concerns prior to going to market you will minimize the potential for trouble down the road.
  2. Hire the right sell-side advisors: Retain reputable legal, tax, and transactional counsel to ensure all the “T’s” are crossed and the “I’s” are dotted. Your investment banker should conduct a comprehensive search for potential suitors that reach across all genres including strategic buyers, private equity firms, hedge funds, etc. A comprehensive marketing approach shows a good faith effort in attempting to solicit the best offer. Good legal and tax counsel can make sure that the appropriate concerns and proper protections/disclosures (i.e. indemnifications, legal and tax opinions, full disclosure provisions, Revlon concerns, SOA provisions, etc.) are addressed and included in the documentation.
  3. Shop the deal: Make sure that a “Go-Shop” provision is included in any agreement with a potential suitor. Stand-Still provisions are becoming a thing of the past as they set-up the seller for third-party allegations that the seller failed to fulfill their fiduciary responsibilities by agreeing to sell the company at a “low-ball’ price, and/or by signing off on measures designed to dissuade competing bidders. The offset for buyers to induce them into agreeing to a go-shop provision is the provision to pay a break-up fee should the seller unwind the deal due to a better competing offer. Just last Thursday, Peter Huntsman, president and CEO of chemical company Huntsman, terminated a $5.6 billion deal with Basell AF, paying almost $200 million to break the deal with the Dutch manufacturer. Instead, Apollo Management LP will pay $6.51 billion to purchase the company. Apollo agreed to reimburse Huntsman for half the breakup fee resulting in a substantial net gain to Huntsman.
  4. Seek a third-party valuation: In addition to being a good management tool, by having your company valued on a regular basis you establish a third-party baseline for what your company is worth and have something to benchmark any potential offers against. For many companies having your valuation updated annually is the standard operating procedure. I suggest that when you order your valuation and subsequent updates that the transaction be ordered by your law firm such that it becomes privileged information and therefore mitigating the risk of a bad valuation surfacing to haunt you at an inopportune time.
Mike Myatt

Mike Myatt is a leadership advisor to Fortune 500 CEOs and their Boards of Directors. Widely regarded as America’s Top CEO Coach, he is recognized by Thinkers50 as a global authority on leadership. He is the bestselling author of Hacking Leadership (Wiley) and Leadership Matters… (OP), a Forbes leadership columnist, and is the Founder at N2Growth.

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