The flip side of the acquisition coin is that a company gets sold. To that end consider these guidelines from Mark Borkowski, president of MERCANTILE MERGERS & ACQUISITIONS CORP. if you wish a change of ownership to go smoothly.
Without question, many mining and resource-based companies in Canada have been subject to significant consolidation and a rash of mergers and acquisitions. If a decision to sell has been made, whether the company is part of a large public company or a privately owned entity, it is important that the selling principals or executives realize the full value of the business.
In order to do this, owners and senior executives must properly prepare the company for sale, gathering together all of a company's detailed business records, technical data and history for potential suitors. This information is only provided to those who have signed iron-clad confidentiality agreements.
Here are some guidelines on how to go about organizing this vital information.
1) FINANCIAL INFORMATION
The most important documentation to have readily available and organized for review is a company's financial statements. It is best to have at least four or five years of complete financial statements ready. The next important step in the information process is to have a sales history on the company.
A current listing of inventory and accounts payable and accounts receivable aging schedules are a must. Also valuable is the owner's or key executives' compensation, listing not only the owner's salary(ies) but also bonus, pension, life insurance, car, perks and all other company-paid personal benefits. This information is crucial in determining what the company's actual "cash flow" is as it significantly influences the purchase price.
General valuations that determine sale prices for most Canadian companies are based on a multiple of normalized Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA).
A set of pro-forma sales and profit projections looking down the road at least one year is essential. Buyers need to understand where their payback is coming from. Any companies with substantial physical assets should have full appraisals done on these assets before moving into this process.
2) BUSINESS INFORMATION
Your acquisition prospectus or information memorandum should contain a "mission statement" that, in a few words, encapsulates the purpose and direction of the company. Your presentation must include a brief but thorough business history on the companies and markets you have served. One very sensitive matter is to guard your company customers. Until a serious intention has been expressed, this information should be guarded.
3) LICENCES, LEASES AND CONTRACTS
Part of what makes a typical company worth pursuing is its important contracts and obligations. These should be easily available, including leases, notes, liens, loans, agreements, contracts, licences, employment agreements and other important contracts.
You will need to provide a prospective suitor with short (no name) resumes on your key managers. A complete management chart annotated with salaries and job titles is important.
There is no benefit to sellers to hold back information and make the buyers pull it out piece by piece. The best negotiations are quick and smooth. A prospective seller can only negotiate the purchase price when they have provided the prospective suitors with information to fully evaluate the company.
Mark Borkowski can be reached at [email protected]
or 416-368-8466 ext. 232.