Discipline matters in optimizing the sale of a business: the economic recovery is slow and caution still dominates much decision much decision-making. But deal opportunities are on the rise, creating an improving market for companies with a business to divest.

• Author: Seagroves, Fentress
• Position: PRIVATE COMPANY M&A

Since 2007, market uncertainty, lack of liquidity and crippled credit markets have dried up the mergers and acquisitions market, causing deal activity to shrink dramatically. But positive signs are emerging. Between sidelined private equity looking for ways to reenergize deal flow and corporate buyers with cash on their balance sheets to invest, options are coming back to the market.

[ILLUSTRATION OMITTED]

Against this backdrop, deal opportunities are appearing, although the pace has been tempered by caution. As always, optimizing shareholder value with a divestiture in such a market takes discipline and a well-thought-out process. Success is anchored in diligent preparation, careful process management and effective information management.

Doing Your Homework

An effective sale process must be designed to minimize the risk of a failed transaction while optimizing the value received by the selling shareholders. At its core, the sale process is like any other business initiative: Sufficient preparation is vital. Take the time to do internal due diligence up front and avoid surprises.

[ILLUSTRATION OMITTED]

Emphasize the good, but also work to detect any negatives and communicate appropriately to avoid issues down the road that could throw the process off track. Credible information is vital to driving value and preserving negotiating position. While a compelling growth story is important, transparency and credibility are both critical factors.

Strong management is the cornerstone of institutional value. It's been said that it's better to link an A-grade management team with a B-grade business than the other way around. Not only does a deep management team create a value point, their involvement is an important success factor during the sale process, where command over both financial and operational issues is a necessity.

History has also shown that active ownership and management team involvement is key, even when outside bankers and advisers are hired. Who better knows the value of the business?

Once the deal is in motion, it seems that nobody works harder than the chief financial officer. The CFO has to juggle both the "day job" of helping to run the company and handling financial reporting with another seemingly full-time job--helping the divestiture succeed.

A premium sale price often comes down to the ability to create a sense of scarcity by clearly positioning the business as unique in a way that makes it attractive to the potential buyer or group. What makes the buyer tick? Why are they interested in your company? Dig beyond what they say to hear what they're not saying.

Uncover the buyer's agenda, key value drivers and any deal-critical and deal-breaker issues. If you don't know what is driving the buyer, you can't negotiate from a position of strength. If you do know, you can confidently convey why you expect a premium price.

Managing Both the Process And Information

A Letter of Intent...