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Tuesday, January 20, 2009

Selling a Company During Tough Times – Part 2, The Deal
Proactively selling a company during this difficult economic environment is a delicate operation. How does one pursue the sale of a company without appearing desperate?

The previous article (below) covered what to do differently in locating and engaging with potential acquirers. This one will touch on how to handle the deal execution phase differently during tough times.

1. My opinion on valuations.
At the moment, I believe there is a large disconnect on price expectations between buyers and sellers. In my view, each side is only partly right. With the publicly-traded stocks down approximately 40% from just 6 months ago, combined with the lack of other potential acquirers, buyers should expect lower prices, but not necessarily the “fire sale” levels they are seeking. On the other hand, sellers that have alternatives and a bright future have a valid case for using previous valuation methods, but they would be hard-pressed to justify that their valuation is immune to the huge downswing in the public markets.

2. Focus on the terms that are most important.
Most likely, one of those will be deal certainty (in addition to price). More than ever, it is key to avoid letting a signed deal fall through. To the extent possible, minimize the period of time between signing and closing, closing conditions, and any other easy exits that favor the buyer.

3. Be flexible during the negotiation.
Like always, seek to understand the other side and what they need, not just what they want. Use that knowledge to find ways to break logjams during the negotiations. Likewise, be flexible on those terms that are not on the critical list.

4. Consider alternate deal structures.
For example, maybe a strategic investment or other structure short of an outright acquisition meets the goals of both parties.

5. Maintain the highest level of integrity during the deal process.
Of course, this is always important. However, the consequences of a lapse in judgment are particularly high now. It’s likely there are few alternative acquirers, so don’t take any chances of alienating one.

This time of economic difficulty and uncertainty presents a challenge for both buyers and sellers, but transactions that make long-term strategic sense can still get done.


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