Keeping the sale of your private company on track: M&A is expected to keep growing, and mitigating problems during a deal often defaults to the CFO. Here are some common mistakes that can derail a good deal.

• Author: Sherman, Andrew J.
• Position: M & A

More than ever, financial executives play a key role in preparing the company for an M&A transaction, both in the pre-transaction stage and in keeping the deal on track.

From the seller's side, a multitude of events can derail a potential deal, even though the seller has given strict attention to the preparations leading up to the transaction--from selecting the team (investment bankers, certified public accountants and lawyers); to deciding on the strategy and time-frame; to identifying potential buyers; to preparing the marketing document, the Confidential Information Memorandum; to preparing for due diligence; and executing the game plan.

Once the seller has assembled the M&A team, conducted an internal presale legal audit and pulled together the "good, the bad and the ugly" in a detailed Confidential Information Memorandum, the seller is ready to start contacting potential buyers. To maximize the selling price, however, the seller must take certain strategic and reengineering steps in order to build value in the company and to avoid the common mistakes made by sellers.

To properly reengineer and position the company for sale, hard decisions need to be made, and certain key financial ratios need to be analyzed in critical areas, such as cost management, inventory turnover, growth rates, profitability and risk mitigation techniques.

The following are a sample of the common preparation mistakes sellers make in getting ready to sell their company:

Mistake

Being Impatient and Indecisive

Timing is everything. If a seller seems too anxious to sell, buyers will take advantage of the seller's impatience. Sitting on the sidelines too long, on the other hand, can close the window of opportunity in the market cycle to obtain a top selling price.

Mistake

Telling Others at the Wrong Time

Again, timing is critical. If the seller tells key employees, vendors or customers that it is considering a sale too early in the process, these entities may abandon their relationships with the seller in anticipation of losing their jobs, their customer or supplier, or from a general fear of the unknown. Key employees, fearful of losing their jobs, may not want to chance relying on an unknown buyer to honor their salaries or benefits.

A related problem for closely held companies (or if one person owns 100 percent of the shares), is how to reward and motivate key team members who may have contributed over time to the company's success and will not be participating in...