When you’re owned by private equity, you're for sale every day. Something, then, for a CEO to consider is who from their team will be in the room during a conversation with buyers?
“Which two or three other key people are we going to have in the room?” Authentix, Inc. Chief Financial Officer David Brown asked at the Dallas Smart Business Dealmakers Conference. “And as a business owner, you really need to get that straight. And then are they ready for it? You can have the best Chief Operating Officer, you can have the best CFO, you can have the best sales, marketing person, if they're going to be in the room, are they ready to stand up and present and talk articulately about the business? They can know your industry incredibly well, know your business very well, but are they ready as well? So, figuring out who's going to be in that room, what role are they playing, I think that is really important start. And get that done before you ever start to sell your company — start thinking about that now.”
He says the courtship of a business sale requires interpersonal skills. That’s why he says it’s important to have somebody in the room who can be compelling, can show a lot of passion about the business, and can tell its story well. But because he can be captivated by such a person, he says, as a buyer, he needs to maintain perspective.
“I have to distance myself because I'm a people-oriented person. But when I go to buy a company, I want to know the people, and I want to know what they're going to go do with the money — they want to build hot rods or yachts or what are they going to do. But at the same time, you can't fall in love too far as a buyer,” he says. “I still have to make sure the numbers and everything else are right. But I'm always looking for people to have some spark to them, and I think that's important.”
That’s in part why it’s important to not only have the right people representing the company, but also have the numbers to back it up. He encourages business leaders to build their data room — and not just right before going to market.
“Start building your data room today,” he says. “If you haven't started, start today. And then audited financials. We're going to want audited financials, tax returns, the actual copies of the share certificates … Start building it today and just keep it up to date.”
To better tell the company's story, he suggests writing the aspects of the company to highlight on pieces of paper and taping them to the wall so they can be rehearsed. That could mean points such as intellectual property, manufacturing process, people, diversity, etc.
“It's really important to start putting that story together,” Brown says. “Why are we selling? Why is it interesting for somebody else to buy? And you love your business, and you want somebody else to, but start to get that story together a little bit.”
People are often a core part of a deal, so, ahead of going to market, he says make sure the team is capable of making the transition. For example, he says in one deal, he sold a business to a very large company. The assumption from his accounting team was that all their jobs were going to go away because certainly the larger company could replace them all. That turned out not to be the case — and, in fact, he says some 90 percent of those who went over in the transaction still work there today.
“They need people to run the company. So, make sure you have a team that is going to be there to continue to run the company in the future and take care of the accounting and service contracts and all those details, because that's why I'm buying a company,” Brown says. “I'm buying you and your expertise. I don't typically know everything about that industry. In some cases, I know nothing about it. So, make sure you've got a really strong team. You've got succession planning. If you have a key individual, is there a backup for the GM, if he or she has a heart attack, or whatever might happen.”
