The Intermediary's Role in Handling Transactions

© Premier Sales, Inc.

There are many different kinds of Intermediaries. Investment Bankers ($50 Million plus), Merger and Acquisition Professionals ($1 to $50 Million), Business Brokers (Under $1 Million) and Consultants are various titles given to individuals or companies who are involved in the "merger and acquisition" and corporate finance marketplace. There are different opinions as to how to define the size transactions the above advisors work on as well as to describe the specific roles they play in their specific marketplaces.

Generally speaking, the following will address Intermediaries who advise their clients on transactions which range in price between $750,000 and $25,000,000 Million Dollars.

Intermediaries should have familiarity with business, tax, accounting, legal and industry specific issues as they relate to transactions. They are also legal Fiduciaries and like any fiduciary they have the responsibility to treat their clients with the utmost of diligence, allegiance, dedication and trust (honesty).

In today's sophisticated world of "Mergers and Acquisitions" the process of selling small to mid-market sized companies requires a more diligent and professional level of preparation. Corporate Buyers, Private Equity Groups, Synergistic Consolidators and IPO minded Entrepreneurs are often well-armed with a specialized knowledge of specific industries and a savvy understanding of "the art of transactions" in general. Many of them and very adept at crafting transactions to their greatest economic benefit. I have seen, far too often, the art of legal "grand theft" consummated in transactions both locally and nationally, when "seemingly astute sellers" (in their own minds) did not retain experts to represent their business, legal and financial interests. It is critical that owners of companies be equally knowledgeable and well armed with astute, knowledgeable advisors so they can ultimately reap the economic benefits they duly deserve at the closing table.

Intermediaries provide varying levels of sophistication. Basic essential services should include the following:

1) Prepare the Company for Sale -

Educate the Seller about the "Merger and Acquisition Process", i.e., the many issues, questions, expectations and concerns, challenges, stumbling blocks, and inquiries, the Seller (he, she or it) will face. Help the Seller identify the various means to "clean up", resolve or mitigate potential problem issues, as they relate specifically to the Company, before "going to market". Stress that the transaction process is just that, a process rather than an event. The Intermediary must gather specific and comprehensive information about the Company and its industry before being capable of anticipating specific "challenges" which the Seller will face in packaging, positioning, marketing, negotiating and ultimately consummating their transaction objectives.

2) Valuing the business -

The Intermediary should have a thorough understanding of different valuation and appraisal methods, how they may effect value and which method or methods are best suited to a particular assignment. They should also know how to evaluate financial statements and ascertain the true market value and earnings of companies. In this regard, it is critical that Intermediaries understand how to recast or adjust financial statements to account for non-recurring, atypical, non- customary, extraordinary and/or unusual events as well as personally oriented economic benefits which may accrete to privately held owners of companies. Different methods include : Discounted Future Earnings or Benefits, Capitalization of Excess Earnings, Capitalized Earnings, Balance Sheet Methods (e.g., Book Value, Adjusted Book Value, Liquidation Value, Tangible Assets), Cash Flow Method, Cost to Create Approach, Market Comparables, Rules of Thumb, etc............. Value and Price are often two very different methods. See - "Shopping the Company".

3) Packaging the business -

Confidential Business Review's, Prospectus's, Confidential Offering Memorandums, and The Book are names, identifying the package which contains salient information apprising the prospective Buyer (he, she or it) of relevant operational, financial, cultural and other meaningful information respecting the selling company. It's the Seller's and Intermediaries responsibility to articulate, put in writing and accentuate all financial and non-financial attributes of the business. It is also equally critical to defend, rebut, counter, mitigate or put the proper "perspective" on negatives, or perceived negatives, so the prospective buyer understands that negatives are (hopefully) manageable, correctable or perhaps, potential opportunities for the new buyer. Common issues discussed in packages include : History, Marketplace, Customers, Marketing and Sales, Buyer Opportunities, Products, Production, Services, Manufacturing Process, Strengths and Investment Highlights, Weaknesses-in their Proper Perspective, Barriers to Entry, Employees and Management, Competition, Legal, Environmental,

Industry, Facility, Equipment, Licenses, Financial History and Analysis, Financial Projections, Terms, Owner Objectives, Exhibits, Culture, Etc. Keep in mind that sophisticated buyers are extremely busy and are often reviewing dozens of "Packages" submitted to them weekly. In order to attract the serious attention of overworked analysts, CEO's, CFO's and V.P.'s of Corporate or Business Development, it is critical to prepare a well crafted and documented package.

4) Positioning the business -

Assert, specifically, why the subject Company is a great acquisition candidate for the universe of Buyers.

5) Proactive Marketing -

Understand the dynamics, core competency(ies) and attributes of the Selling Company. Aggressively research the subject Industry and identify the Universe of Prospective Buyers. Good researchers know how to identify strategic-synergistic Buyers. There are numerous ways to market companies and many different kinds of buyers with very different motivations, priorities, capital resources and perceptions of value. These differences must be carefully evaluated. See - "Shopping the Company".

6) Confidentiality -

"Loose lips sink ships". Well crafted "Confidentiality or Non-Disclosure Agreements" are critical. If prospective Buyers refuse to sign them or delete material language do not waste your time including them as legitimate Buyer candidates.

7) Qualifying Buyer Candidates -

Review financial statements, credit reports, the Buyer's ability to finance and close the transaction. Find out who is (are) the Buyer's lender(s). Obtain a resume, corporate background information and references. If the Buyer has made prior acquisitions, talk to the prior owners, inquire as to the Buyer's motivations and whether he (she or it) has a business plan-going forward. Evaluate the Buyers management style, "chemistry" issues and try to hone in on issues such as integrity, character, honesty, follow-through, etc.

8) Buyer and Seller Meetings -

Coach and prepare the Seller on how to conduct "in person" meetings. Make sure the Seller maintains a positive attitude about the business and its prospects for the future; Articulate clearly the corporate strengths, opportunities and attributes, verbally and in writing; Convey the idea that the seller is not the "heart and soul" of the business (unless the contrary is true) and communicate that the business "relationships" can be transitioned seamlessly to the new owner without disruptions or undue problems.

9) Negotiation Assistance with Buyer Candidates -

Every communication, verbally or otherwise (packaging, positioning, offers and counter offers), may impact the ultimate price, structure, terms and conditions of a Transaction. The Intermediary must work closely with the Seller and make sure all advisors are "on the same page". It is critical to analyze the Buyer's priorities, motivations, needs, timing issues, source of capital, strategy and perception of the transaction. Don't forget, "no" doesn't always mean "no". The same goes for "yes" and "maybe".

10) Assistance and interfacing with professionals -

Intermediaries can be instrumental in disentangling a deal from financial or legal gridlock. Frequently, various issues including tax issues, liability issues, reps and warranties, indemnification or other "deal killer" issues reach an impasse. Remember the intermediary was involved with the transaction from the very beginning and should be knowledgeable of the initial motivations and most important issues of the principal parties. Intermediaries can motivate buyers and sellers to remove their ego's from certain negotiations and help them to focus on material issues. They can be instrumental in opening up lines of communication and breaking the "gridlock".

11) Assisting with pre-due diligence and post closing transition -

Intermediaries should assist Sellers prepare for what may be an exhaustive Due Diligence Process. Provide the Seller with "Checklists" to help them prepare for the potential in - depth legal, business, financial and accounting due diligence process. Sellers are generally not familiar with this process, which can monopolize a lot of time, corporate resources and energy. Help prepare them.

12) Overall management and control of transaction -

The Intermediary should keep the transaction process moving forward, keeping the principals and advisors focused on the mission at hand, at all times. They should attempt to anticipate troublesome problems, constantly evolving issues, and challenges which may derail a deal. Essentially, they should help their clients navigate the potential minefields that may be strewn throughout the "Transaction Landscape".

Finally, Intermediaries should have the breadth and depth of : resources, negotiation skills, management and transaction skills, industry knowledge, personality and overall ability to adeptly control and handle the sale, merger and acquisition of companies with all of their particular dynamics and unpredictable moving parts.