In her 20 years in business, Catherine Lang-Cline, founder of Portfolio Creative, says once a year she’d get an email from somebody saying they’d like to buy her company and would propose sending her a letter of intent. Not really being serious about it, she looked at a couple. But when she had reached a point that she was ready to move on from the business and it was time to engage with buyers, she says she sought out the help of a professional to better understand what an LOI meant to a deal.
“He talked to us like you're practically in third grade,” she said at the Columbus Smart Business Dealmakers Conference. “Not that we're not smart people, but it's all new to us. This is something that we had never really entertained at this level. So, to have someone on your side that has read through a few — a lot of them, when I say a few — and understands what it all means is so critical.”
In an LOI, the prospective buyer is proposing a price for the business. She says that offer is unlikely to go up once due diligence is underway. To her, it’s more likely that the number is going to go down.
“You start going through due diligence and what you think is the most valuable thing — Oh, my god, this company must be worth $10 million and I need this to retire. It's never true, especially with service industries, which is what we have,” Lang-Cline says. “And just to have someone say, ‘OK, here's what they're asking. We're going to assume that's going to hold if everything lines up.’ But you could easily look at that and just say, ‘Oh, this is just part of the negotiation.’ No. This is what we're going to offer you unless something crazy happens. So are you in or you out? So yeah, you have to take it pretty seriously. And have somebody who has done it before go through it, because a lot of it is language that you don't know.”
When they took the company to market, she says 100 invitations went out anonymously, and they got back around three. Of those, one or two stood out as being close to where in their mind they wanted an offer to be, as far as price goes. And she took those offers seriously.
“When in the LOI, if you sign that, that's go time,” she says. “You're saying that this is agreeable to me, almost as is, right here, but we’re going to work through it.”
When they narrowed it to one, they engaged an attorney to read through it and talk to them about the legal aspect of the deal — what they might be obligated to at that point — so they understood.
The sale of her business, she says, was not complicated. It was a staffing company, so it was a matter of the contracts, database and the team. The last aspect was the one she thought most carefully about.
“All these people were in the dream when you hired them with you, and then now you're saying, ‘OK, you got this, and I'm going to go.’ So, taking care of them was very key,” she says. “We really looked at that. And it was super helpful that in those LOIs that was actually addressed, too, versus we will offer your team roles. So, they're not just going to take our stuff and go. All of that stuff was really important.”
She says something that can be helpful to sellers going through a process is keeping their goal in mind.
“Just to think of it as, what's the vision? What's the end result that you want to have?” she says. “That's something that you have to keep reminding the person selling is that, this is what you wanted. You wanted your team to be taken care of. You wanted X amount of money. You wanted to get out after six months. And no matter what moving parts are going on, if you keep using that as your North Star, it gets a lot easier too.”
The LOI was very close to how the deal ultimately came together. But that took a lot of due diligence on the front end to make sure they had it priced right.
“It goes with anything, even if it was thrown up on Facebook Marketplace — if it's a good price, someone's going to take it. And you just have to backward engineer that to be like, OK, but what is it worth? And let's try and up that a little bit, because it's going to probably go down. So, really put that best foot forward. Have somebody help you really put a shine on everything.”
