What 30 Years of M&A Told Us, part 2
Many business owners envision a successful sale in the future. But how many have walked through a term sheet, all its nuances, with their peers in a risk-free environment?
Attendees at Day 2 of our “Selling Your Business” program can now count themselves in this camp.
M&A attorney Kevin Cudney led a lively discussion as the group walked through a term sheet from one of Kevin’s past deals. As we did in part 1 last week, we’ll provide some highlights from this interactive event.
Spending time with an actual term sheet is important. Before the Great Recession, term sheets were often considered placeholders. Today, the term sheet “is the fork in the road between formal and informal.” Although they are non-binding, signing a term sheet without having a professional review it first can be a costly mistake.
The issues within a term sheet are many, and negotiating each variable can be “like playing whack-a-mole.” Indemnification, deductibles, representations and warranties, and so-called “weasel words” are all expected to play a part in a term sheet.
Although full of technical terms and key variables, Kevin’s presentation underscored the people side of the deal as well. “Employees are often the heart and soul of the Seller’s business — and a critical asset to be considered in valuing the Seller’s business. The importance of employees to the Seller often survives the closing.”
He referenced Cowboy Ethics, a book our Janiczek clients have heard us reference in the past. Kevin discussed these when talking about the “gotta haves” of a deal that go far beyond things like valuation, earn-outs, or key people. All of the attendees received a copy of Cowboy Ethics at the conclusion of the workshop.
Lastly, not all deals make it to the closing, and sellers who are prepared for this will have “Plan B” ready to go. “You’ll always be ok if you’ve get your deal and your daily operations have remained separate during this process.”
For those entrepreneurs and small business owners who would like to learn more about integrating and elevating personal and business wealth, please call us to start a conversation.