Consider the following three areas of preparation to ensure that your company is deal ready.
Audited Financial Statements
First, have your financial statements audited by a reputable accounting firm with specific transactional experience. A buyer or investor will expect audited financial statements. Audited financial statements with a report from a reputable firm will lend credibility to your operating results. Many companies wait to have an audit performed until the closing of a transaction is imminent. The negative consequences to such a decision are: (1) the late start to the audit delays the closing process of the deal; (2) owners and management will have missed out on valuable advice on structuring the deal and controlling the due diligence that a quality accounting firm with business transaction experience provides; and 3) your credibility may be questioned due to audit adjustments to the preliminary financial information you provided to the potential investor or buyer, and resultingly reduce the valuation of your company. If your financial information is questionable, the buyer takes on increased risk and will expect to be compensated for that risk through a lower purchase price.
At Tanner, we assist companies with more business transactions than any other firm in the market, including the Big 4. The 2010 Mountain West Capital Network Deal Flow Book reported that Tanner assisted with 28 M&A and public and private equity financing transactions during 2010. The next closest accounting firm assisted with eight transactions. Companies turn to Tanner when it really matters because of our reputation with key players in the market and our ability to turn around quality work in the short time-frames required for most transactions. Many of the local venture capital and private equity firms engage Tanner to perform due diligence for their investments and acquisitions. Not only is that evidence of their trust in a Tanner audit but also that we know what buyers and investors are looking for when they dispatch their due diligence teams. We make sure our clients are ready.
Getting Documents and Contracts in Order
Second, it is imperative that all company documents and contracts are current, in order, and easily accessible. Reviewing these documents will be a key part of the due diligence effort. Advance preparation and organization in this key area will instill confidence in your buyer and will streamline the due diligence process.
Consult with a Trusted Transactional Attorney
Third, a good attorney that specializes in business transactions will help you avoid the legal pitfalls of a transaction and ensure that you are protected. You have expended a significant amount of time, energy and money building your business. You don’t want to throw that away with a bad agreement. Too often, I see business owners wait to engage a good attorney until after they have signed a letter of intent. If the buyer’s attorney prepares a letter of intent that is unchallenged by a good transaction attorney who is on your side, the deck is stacked against you! These documents frequently have provisions that are harmful to the business owner that would have never made it through the review of a good attorney. Once the terms of the sale are agreed to in a letter of intent, it is difficult to change without walking away from the deal. Just as bad, a poorly written agreement leaves open questions and can result in disputes and litigation down the road.