CHAPTER 1

SELLING YOUR COMPANY

Let's take a look at a couple scenarios:

Over the course of 30 years, you've put a huge amount of time and effort into your business, called Tux Deluxe. In the past five years, you have enjoyed a nice income -- as your business has generated growing profits that have reached about $2 million annually. The business affords you an important role in the community. You have created hundreds of jobs, and some of your people have been with you for more than 20 years.

But the tuxedo field is not an easy one. After all, a person rents out a tux, on average, about once every 10 years. And business growth has slowed in the last year because of industry consolidation -- shifting from regional to national players. Clearly, the next few years will be a challenge. But you'll be turning 65 in five months, and grueling competition is not what you had in mind. As much as you love the business, you've been giving a lot of thought to retirement.

Unfortunately, there's no one to take your place. You've been the sole driving force of the business. None of your three kids have an active role in the business, nor want one, and your general manager has no interest in owning the shop.

You're trying to get a handle on some very tough questions: Should you sell out? If so, to whom? How do you do it? What about the taxes -- will they decimate your profit? How do you diversify your wealth ?

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Following a great American tradition, you dropped out of college to start a high-tech company based on a Web 2.0 technology you and a classmate had devised. In its first year, the company has grown ferociously, garnering $25 million in top-flight venture capital as well as a strategic investment from Google. Yet you still do not have any revenues. The company's key service is still in beta and profitability is projected (optimistically) to come two years out from the rollout. Meanwhile, your company is burning through $3 million per month.

At the same time, you're facing some tough competition. Four other companies with similar technology under development have received $25 million or more in venture capital. You know you are in a hot market and have a very skilled engineering team. But can the company really survive?

Investment bankers are courting you to go public, claiming that you can raise $100 million at a minimum. But, are public investors ready for such an early-stage play? And, what about regulations like Sarbanex-Oxley?

Then again, several big companies -- including Google, Microsoft, Yahoo! -- have already offered to buy the business for between $200 million to $300 million, which would make you and the shareholders rich. But if there is a successful IPO, the company could ultimately be worth more than $1 billion. What should you do?

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You are the CEO of a billion-dollar corporation that distributes generic drugs. The company, which has been around for over 30 years, is currently trading on the New York Stock Exchange at $20 per share. But the stock has barely moved in the past two years. In the land of the healthcare giants, the company is ignored by investors and analysts -- despite a 15% annual growth rate in net income. Basically, the company is stuck.

To make it into the "big leagues" requires that it purchase other companies. But the stock valuation is too low to buy other companies.

Even though you do not want to sell the company, it appears to be an option that needs to be considered very seriously. But if there is a buyout, who should it be with, and at what terms? Will you remain CEO? And will the company retain its autonomy? Should you sell to a competitor or even take the company private in a leveraged buyout?

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Selling your business can be a wonderful, gratifying, lucrative experience. For many businesspeople, selling their companies served as a springboard to even greater achievements -- perhaps building a new company.

But it is by no means a simple process.

There is a lot to know, and the more you understand about the process, the better it's likely to turn out for you.

After all the work and care you've poured into your enterprise, you absolutely deserve to get the best deal possible when you sell. And what exactly does that mean? It means that you won't leave anything on the table.

This reminds me of a friend of mine who sold his company. He said to me, "You want to know the main reason I sold?" He pulled out a picture from his wallet, and it was of him and his wife on an exclusive beach in Fiji. "By the way, I had to write two big checks because of the transaction. One was for my investment banker, and the other was for April 15th." No doubt, it was well worth it for him.

Unfortunately, many times sellers don't get what they deserve. Buyers tend to be more experienced in these types of transactions, which puts sellers at something of a disadvantage. Even if you've been a savvy business operator for many years, it is extremely advisable to retain the services of several professionals during this process. In this book, I will provide you with the know-how to secure the appropriate and skilled helpers and to make the best use of them.

The critical factor is preparation -- you should know what to expect and give yourself enough time to arrange your business and personal situation to help obtain an optimal deal.

In fact, as an owner or CEO of a company, the possibility of selling it should never be far from your mind. Perhaps it seems like a far-fetched idea at the moment, but markets can move extremely fast, and an excellent M&A opportunity might present itself sooner than you expect. When it does, you want to be ready to move fast and skillfully.

Just like anything in business, there are no clear-cut answers, no one-size-fits-all solutions. Every situation is unique. However, there are definitely ways to approach these situations. That's what we will explore in this chapter.

I begin with an overview of the sequence of actions involved in selling a business. Then I proceed through the various stages, offering detailed guidance about how to handle all these activities, many of which will be unfamiliar to anyone who has not previously sold a company. The information, knowledge, and advice you glean here and in the other related chapters will be a source of power for you as you proceed through this exciting undertaking.