Buying and Selling a Business Is a Team Sport

By Tom Taulli

Why do teams win championships? It's not because of a star player that makes a huge salary; rather, it is a group of athletes who play as a team.
It's really that simple.

And the same principle holds for buying or selling a business. The process is exceedingly complex and requires knowledge of a variety of disciplines, such as finance, the law, and accounting.

True, you could engage in the process without a team ó but you are likely to wind-up the loser in the transaction.

Who needs to be on your team? Here the players you need:

Attorney: Ok, ok, we all love to hate attorneys. They tend to be sour pusses and charge a high hourly rate. They will often try to scuttle a deal because of some technicality.
But, we need 'em.

During the past few months, I taught a course on M&A at the USC School of Business. Students would say, "Is this a law class or a business school class?" If you look at my course PowerPoints at my site at www.mergerforum.com, you will see lots and lots of legal concepts.

The fact is that the sale of a business involves establishing intricate deal structure issues, such as consideration, obligations of the parties, liabilities, and confidentiality (we discussed confidentiality in issue #1).

So, it should be no surprise that attorneys are a critical part of the process.

CPA: You may need two CPAs; that is, one to structure the deal (especially in terms of minimizing tax exposure) and another to perform an audit. The latter needs to be completely independent.

As for the tax CPA, try to find one that has extensive M&A experience. The CPA may, for example, be helpful in developing cash flow projections.

Broker/Investment Banker: For transactions below $50 million or so, you will probably retain a broker. Traditionally, the broker represents the seller and his commission is paid by the seller. Although, you can also get a buyer's broker (which is a good idea). The broker is obligated to disclose who he represents.

The broker's compensation may involve a retainer, say a monthly fee of $5,000 or so. But, if a broker completes the transaction, he will usually get a percentage of the value of the deal, which can range from 5% to 15%.

It is very important to see how many deals the broker has completed in the last six months. If the answer is "zero", then interview another broker. Also, see if the broker has experience in your particular industry. You want to ensure that your broker can make the transaction happen.

If interested in finding a broker, you can check out the Broker Directory at MergerPlace.com.

Conclusion

When interviewing potential members for your deal team, make sure you get references (and check them!). Do not be afraid to ask any question. And, if you have a bad impression, it is probably smart to look to the next candidate.

The process is not easy and will take several months. But in the end, you will have a winning team that can make all the difference between success and failure.

MergerPlace is pleased to have the esteemed Mr. Tom Taulli as the managing editor of our MergerPlace M & A Advisor™ E-zine.

Tom Taulli is an expert in the M&A process. He is the author of the critically acclaimed The Complete M&A Handbook (Random House) as well as six other books written for publishers such as Bloomberg and McGraw-Hill. Tom also teaches M&A at the USC School of Business.

Tom has been quoted extensively in the press, including the Wall Street Journal, USA Today, Barron's, and The Los Angeles Times, and has provided commentary on CNBC, CNN, and Bloomberg TV, as well as appeared on a variety of top radio stations across the country.

Tom's books are available for purchase in our bookstore.

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