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Executive Rountable

It's Seller Beware in Company Acquisitions

Business Owners, Company Presidents and CEOs Share Advice

July 08, 2001

TEC Worldwide is an international organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help one another solve problems. The following questions and answers are based on recent TEC meetings in Southern California.

Question: Two months ago, I received an unsolicited offer to buy my company. I have no intention of selling any time soon, so I politely declined. Afterward, I wonder whether I should have at least listened to the offer. What do you think?

Answer: It never hurts to listen. However, beware of what you're getting into or you may get taken to the cleaners.

Peter Collins, president of New York-based Buckingham Associates, has worked with dozens of owners of privately held businesses to position their companies for sale. He recommends the following approach: First, check your motives.

Do you really want to sell now or are you just trying to determine the value of your business? If you want to know the value, don't waste your time or give away confidential information to a potential competitor. Instead, hire a qualified appraiser or investment banker to value your firm.

Next, check the buyer's motives. Why do they want to buy your firm? Is your company special, or has the suitor approached many similar companies, including your competition? Conduct some research into the buyer's qualifications. Ask questions such as "What would you do with the company once you acquire it? How many other companies have you purchased and may I speak to them?"

If the suitor happens to be a public company, go on the Internet to http://www.edgar-online.com to review its quarterly and annual financial reports. While there, be sure to look for any information regarding past acquisitions.

If the offer looks good enough to move forward, have the suitor sign a nondisclosure agreement that includes a clause regarding employment of your staff. Buyers often approach acquisition candidates as a way of gathering intelligence about the competition and identifying talent.

Should the deal fall through, you don't want the suitor poaching your best employees. Understand the ground rules for business valuation and know the value of your company.

At the same time, provide the buyer with all relevant information so that firm can accurately assess your company's value. This includes nonfinancial data such as customer information, uniqueness of products or services, management depth, new products, competitive position and market share. Never give out "raw" financial information. In privately held firms, most financial statements include excess owner benefits, one-time charges and capital items that were expensed. Adjust any financial statements for these add-backs before releasing them to a potential buyer.

Don't assume the buyer knows your company's core strengths. To pay the highest price, a buyer must understand how acquiring your company will add synergy to his company. The more you know about the suitor, the better you can position your firm.

Above all, don't try to go it alone. Most business owners sell a company only once, whereas buyers frequently have the experience of purchasing many companies. Selling your business probably will represent the biggest financial transaction of your life. Hiring an experienced intermediary will make the process easier and greatly improve your chances of receiving full value for your most important asset.

Q: Our sales have been rising nicely for three years, but our sales costs keep climbing right along with them. How can I cut my cost of sales and improve margins?

A: Welcome to the club. As global competition continues to heat up, companies in virtually every industry face unrelenting pressures to reduce sales costs and maintain margins.

However, Jim Bleech, author of "Let's Get Results, Not Excuses" and "When the Other Guy's Price is Lower," believes that many companies can reduce selling costs by up to 20% by paying attention to a few frequently overlooked areas. Here are some steps to take.

* Eliminate unprofitable sales calls. Find out what it costs to put your salespeople in front of a customer or prospective customers and stop making calls that don't make money.

* Disqualify some prospects. Qualifying prospects often consumes inordinate amounts of your sales force's time. Instead, have your salespeople focus on figuring out who isn't a prospect so they can move on to someone who is.

* Eliminate unnecessarily long sales cycles. Measure the average time it takes to close a deal and establish a cut-off point slightly beyond it. When salespeople exceed the cutoff point without making a sale, have them drop the prospect unless they have valid reasons for continuing.

* Avoid poor account transitions. Maintain tight control of customer data so when salespeople leave your company nothing gets lost or falls through the cracks.

* Eliminate needless paperwork. Get rid of all nonessential paperwork so your salespeople can spend their time where it pays--with prospects and customers.

* Eliminate non-value-added entertainment. Stop bankrolling lunches and dinners that produce no value. Reimburse entertainment expenses only if the salesperson comes back with tangible information regarding the customer's strategic issues.

* Identify the behaviors and results you want each salesperson to focus on. Based on those priorities, have each salesperson develop a set of key indicators for tracking and reporting on a weekly basis. Hold your sales force accountable for these indicators and watch your sales go up while your sales costs go down.

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If there is a business issue you would like addressed in this column, contact TEC at (800) 274-2367, Ext. 3177. To learn more about TEC, visit http://www.teconline.com.

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