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Speaker: Holly A. Magister, CPA and Certified Financial Planner®
This post is intended to help those who either own a business or advise business owners in the lower-middle market — defined as a business with gross revenue between $5MM and $50MM — and is especially helpful if you want to know how to sell your business to a competitor when an unsolicited offer to buy is made.
After reading this post or listening to the audio webinar, you will be better prepared to answer the following questions:
- What do I do if a competitor approaches me to buy my business?
- What are the ground rules I should follow when selling my business?
- Is an LOI really necessary when selling a business?
- What are the important deal terms when selling my business?
Businesses in the lower-middle-market are prime targets for competitors, private equity firms and other types of investors. These prospective buyers are actively searching for businesses with good cash flow and/or those which present growth opportunities so they may improve their company or investment portfolio ROI. Many business owners find themselves unprepared as unsolicited offers of acquisition interrupt their otherwise normal business day.
The objective of the webinar is to help the participants learn how to get to a bona-fide offer and subsequently to negotiate terms and conditions that won’t keep everyone up at night!
The webinar will be broken down into two parts – Getting to a Good Offer and Negotiating Terms and Conditions. Emphasis will be on the practical side of getting deals done and ways to overcome roadblocks along the way.
Included in the 80-minute webinar will be the following topics:
Part 1 — Getting to a Good Offer When a Competitor Approaches
What To Do If Someone Wants To Buy My Business?
- Establishing the ground rules when approached by unsolicited buyers
- Non-Disclosure Agreements and why they may not protect the business owner
- What should be shared and more importantly what should never be shared until an offer is agreed upon
- When is an Attorney needed in the process?
- The importance of preparation – especially when your business is not for sale
- Never do these four things when an Unsolicited Offer to buy is received
Business For Sale Ground Rules
- The Single Buyer Dilemma
- Sharing the Truth – Asset Purchase Agreement
- The Country Club Selling Price
- It’s Not About Getting to a Win
- Staying the Course
The Offer To Buy Your Business Framework
- The Offer Framework is the first step in getting a good deal done
- The Counter Offer Strategies and Timing
- The Letter of Intent is vital and its importance is often overlooked
- How the LOI sets the tone of the deal and can eliminate many surprises
- How company culture should be weaved into the LOI
- Terms and Conditions in the LOI you don’t want to skip
Part 2 — Negotiating Term and Conditions When Selling Your Business
- Selling Price means very little in many deals
- Most deals fall apart for a reason neither side sees coming – beware
- How to find common ground with the other side
- Understand the buyer’s motivations and use it when it’s most useful
- Specific Terms and Conditions which may prove problematic
- Working Capital Targets (or lack thereof)
- Key Employee Post-Closing Agreements
- The importance of Reps and Warranties – especially for the seller!
- Why Due Diligence requires stamina
- Who should negotiate an Earn Out Agreement and why
- Which professional advisors to call upon when selling your business
Introduction to the Webinar Topic and Speaker
Welcome to today’s live webinar entitled Selling your Business — Negotiating Offers and Terms. At this time, I would like to turn the call over to your host Holly Magister. Please go ahead.
Thank you, Natalie. Good afternoon everyone. I hope it’s a beautiful day for all of you. Such a nice fall season that we’ve had. I’m looking forward to hopefully having a chance to answer some of your questions at the end of the webinar.
Why Is the Topic of Unsolicited Offers to Buy a Business So Popular?
I want to start off by kind of making a quick introduction as to why I chose to do this topic to speak on this topic and why at this time in particular. In my own practice fielding calls nearly, every day from folks who are receiving these unsolicited offers to buy their business. And many of these business owners, and even other advisers who have been calling me, are really sort of at a loss as to how to handle the calls. You know the stock market has been up continuously for a number of years now, which has led to a lot of future positive outlook and that’s given way to optimism in the capital markets across the board. Interest rates are so low right now and continue to be. It’s created a vast amount of capital in the private equity market and because of that there’s just a tremendous amount of cash available through private equity. But obviously in other businesses as well who are looking for strategic acquisitions.
Because of this, there’s a lot of competition for a profitable, high-quality company. And so, what’s happening…these companies aren’t available on the market or when they are not available or they’re unable to find them readily, these buyers are going out and directly soliciting business owner. So, these unsolicited offers are coming in. The PE firms must invest the cash that they have. So, it’s really driven us to this point where there’s just a tremendous amount of money out there looking for investments. In summary, it’s a seller’s market.
Getting to a Good Offer When Selling a Business
So today what I have agreed to talk through with all the folks on the line are three topics. Namely, the first two are about getting a good offer. We’re going to walk through the steps to do that.
We’re going to focus on unsolicited offers to buy businesses. Ground rules when a business is on the market and lastly negotiating terms and conditions and what that looks like.
So, I wanted to get started and not take too much time on the introduction. But I do want to mention that in case you’re not aware if you have questions during the webinar, please just type them on the bottom of your screen. You’ll see a tab where you can enter your questions. And at the end, again I’m going to allow some time to answer those. If for some reason I can’t get to all of them, I will have those at my availability and I’ll be able to send you an email with my responses. And of course, I’ll be available after the webinar should you have additional questions.
How to Respond to an Unsolicited Offer to Buy your Business
Okay. Well I’d like to get started. We’re going to talk about the unsolicited offers and what to do about them. Literally, that is the question that I receive from business owners. They’re calling me and they’re asking that question. What do I do about this. In part they’re very excited because these folks have been busy, particularly after the Great Recession, building their businesses. They’re showing up, these unsolicited offers, in snail mail, e-mail, phone calls, networking — just being around and about. Also, I have observed and learned about a number of very sophisticated marketing campaigns. They are going directly after folks who are simply not thinking at all about selling their business. Most of what I’m going to talk about today is directed toward businesses in the lower- middle market and I define that as businesses with revenue between $5 and $50 million.
Now, much of this applies to those above the $50 million mark, and likewise below the $5 million mark, but that particular size is the lower-middle market is what I’m finding where there is the most activity. Where there are business owners, and some of their advisers, who are just not terribly comfortable with how to handle the unsolicited offer. So, I’m going to start with some ground rules. We’re going to talk about NDAs and confidentiality agreements.
We’re going to also talk about what should be shared with buyers. So, from the perspective of what should be shared and what should not be shared and how to handle that. I want to talk about when an attorney is needed. I find a lot of business owners are averse to hiring an attorney. And while I can understand their perspective in many ways, it’s also very critically important that they do so at the right time. And we’ll talk about that. Also going to talk about preparing the business and some of the things that can be done, especially when a business is not for sale.
And lastly, the four things a seller should never do. That’s the first part of today’s webinar.
Ground Rules for The Unsolicited Offer to Buy your Business
So, I am going to get started on establishing the ground rules when approached by an unsolicited buyer. They usually come pretty strong in terms of being emphatic about wanting to talk to the business owner. When a business is on the market through an intermediary or a broker, usually the business owner is not put on the phone right away. That is something that is done down the line after many steps are taken. But if an unsolicited offer comes in, I find a lot of business owners want to jump on the phone and talk to them, or at least they are curious enough that they’d like to do that. So, I recommend that if that does happen and you have a business owner that would like to do that, I encourage that business owner to restrict that quick chat or that a quick call with the prospective buyer to speak about anything that they can find online.
You don’t want to be in a situation where you’re sharing financial information, market information, customer scope, customer concentration information, geography information. If it’s online, you should feel comfortable to discuss it. The purpose of that first phone call at best should be — Is there an opportunity here that’s worth pursuing further? I call it the “warm and fuzzy assessment”. I don’t know that I came up with that but somewhere along the line I heard that expression and really that should be the only purpose of having that first phone call. Again, this is in the case of when a business owner is approached by an unsolicited buyer and they’re requesting a phone call.
Setting Business Buyer’s Expectations
I also feel it’s really important for the business owner, and if you are an adviser and you’re receiving calls from your clients, I would encourage you and I encourage business owners to clearly communicate to the buyers that you will be represented by a team of advisers to assist with this process. Even if you don’t have those folks lined up yet. And I say that because if you do that, you can set the right tone and you raise the expectations of those folks that are calling you. Most tire kickers will fade away if they know you’re going to have a team of advisers helping you. Private equity firms and strategic buyers will respect it and competitors will take note that the seller is not going to be taken advantage of. I really think that’s an important point and a good way to start the relationship. I’m sorry I skipped the slide there, so I want to make sure you’re following.
NDAs and Confidentiality Agreements Timing When Selling a Business
We’re on slide number five now. I’d like to talk through about what you do between the time when you have that warm and fuzzy conversation and when you have a real conversation with a prospective buyer.
If you’ve not hired a business broker or a deal attorney who would handle the confidentiality agreement and the NDA, it’s your responsibility as the business owner to make sure that is put in place. Most business owners are using NDAs or confidentiality agreements in their everyday work. Although that said, I’ve come across a few who have not. One of the things we’re going to talk about here is the prospective buyer. If they do sign a Non-Disclosure, it should definitely be done before a meaningful or real conversation takes place.
Should I Share Everything with a Buyer When an NDA or Confidentiality Agreement is Signed?
And if the business owner is preparing, they should be prepared to only discuss top line information during that conversation. It’s okay to talk about gross revenue if an NDA and a confidentiality agreement has been signed. We’re going to talk about the NDA specifically in a little bit, but just know that talking globally about your gross revenue and the number of full time equivalent employees that you have and maybe your geographical footprint, services and product lines. Those are all acceptable things to talk about once the NDA has been put in place and everybody has signed it.
First Phone Call with Buyer
After the NDA is signed, is when a confidential conversation can be taken seriously. And the purpose of that is to accomplish whether or not there is a good fit between the buyer and the seller. Consider things like:
- Do I like these folks? … if you’re the business owner.
- Are these folks asking questions in a respectful way?
- How difficult was it to even get them on the phone or to coordinate the phone call?
- What is their objective? What is the buyer’s objective and why did they reach out specifically to my company or this company?
- Do they have capital to buy a business? That’s perfectly acceptable to ask! Tell me about your capital structure. Tell me about how you would be financing the business acquisition. Do you have private equity behind you? Do you have money from your own cash flow to buy a business?
These are all acceptable things to ask.
Also, a really good way to understand what the buyer is like to determine if there’s a really a good fit is to ask them if they’ve bought another business. And if so, how many? And how did those turn out? And I have found that those stories really do help sellers understand what kind of deals they’re doing, if they’re a novice or not, or whether or not their deals in the past have blown up. And that can give you a good flavor regarding whether you really want to continue down this path with this particular buyer.
Non-Disclosure and Confidentiality Agreements are Important
I want to talk now about non-disclosure agreements, also known as confidentiality agreements. It is surprising the number of NDAs that I’ve come across that while they do offer language that protects in terms of confidentiality–meaning both parties should be bound to essentially not sharing anything that they learned about one another during the process. The problem with them is that NDAs, if they’re to be effective particularly in M&A, they need to be more than a promise to keep the sale of the business confidential. And what I mean by that is several things.
Non-Disclosure and Confidentiality Agreements Expiration
First of all, they shouldn’t expire. And most attorneys who are reviewing these, particularly on the buyer’s side, they generally do object to that. They want to put a term limit — maybe one year or two years. I always try to go for no expiration because that gives my client, if I’m representing the sales side, the most protection. But the idea or the notion is: let’s try to make it very clear to buyers that what is learned should be remaining confidential for a very, very long period of time.
Non-Disclosure and Confidentiality Agreements Should Protect You
And just as importantly, good NDAs prevent buyers from doing things such as: soliciting the business owner’s employees, or their customers or their vendors. And even in certain circumstances, certain professional advisors. And lastly, that protection should be available to a seller both during and after the acquisition process ends.
The risk you have when you’re selling a business — if things don’t fall into place and you and it ends up the deal not going through with any buyer, they will during the process — depending on how far they get down the line — they’re going to have exposure to virtually everything you have or a business owner has to run their business. Names of key employees, access to their vendors, they’ll eventually learn their gross profit margins, they’ll learn things about any kind of proprietary processes that have been developed and also maybe key vendors that are outside of the scope of employment. It could be somebody who does some freelance work but happens to be extremely talented. So those are all things that need to be prevented and protected.
So, the NDA — really the solicitation clauses in an NDA — are very, very important, particularly in M&A. We’re going to talk also about what should be shared before an offer is agreed upon.
I just want to back up a little bit just to make sure that you’re following along here in terms of the progress.
When Should I Hire an Attorney When Selling my Business?
We started with the warm and fuzzy phone call and then we’ve moved to an NDA, with the non-solicitation agreements included. And then you had then a meaningful conversation. At this point, the buyer is very likely going to be asking for many more things. If that initial meaningful conversation is positive, the buyer will most likely ask to see everything. They’re going to want to see financial statements. They’re going to want to see your client roster. They’re going to want to see the concentrations of customers. They are going to want to see everything under the sun! I would highly recommend hiring an intermediary at this point and engaging an attorney and CPA, if that has not already occurred. Because once you go beyond this point, you really are revealing an awful lot about a business for sale.
What Should I Share with Buyers When I Have a NDA or Confidentiality Agreement?
So, what happens after this is: they’re going to be able to look at something. Generally speaking, the executive summary is put together. Depending on the size of the business, sometimes it can be very substantial. They call them “the book”. But those things I’ve listed those here on the screen. These are some of the things that are included. These are all acceptable things, under the right circumstances and only if the business owner is very comfortable to move forward with a particular buyer. These things can be shared. I’m not going to go through each and every one of these items. I spell them out here just so that everybody can refer to them later.
How to Protect Highly-Sensitive Information Under an NDA or Confidentiality Agreement?
But know that by sharing this level of information, it’s not necessary for you, or for the business owner, to disclose the nitty gritty. And what I mean by that is — if you have things like you’re sharing the employee statistics such as how many full time equivalent employees you have and their work schedules and benefits programs, it’s perfectly acceptable and it should be expected that their personal information — their names, who they are, is presented to them in a redacted form. Similarly, when presenting things like EBITDA figures or Adjusted EBITDA, it’s perfectly normal for them to ask for and for you to provide what those adjustments are. If there is an adjustment for one of the shareholder’s salary because maybe it is excessive and that’s adjusted back and added back to EBITDA to equal Adjusted EBITDA, it’s appropriate again for those types of information to be shared.
But it’s important to be mindful that this is phase one in the due diligence process. And it really should be at a relatively high level. You’re not going to be providing them with you know every contract that you have with your top five customers. You may identify that you have a customer concentration at this point. And what that percentage may represent but you’re not going to necessarily be giving them everything. So again, we’re in phase one of due diligence and it really is a high-level, executive level of information.
So, despite the fact that a business owner may be asked for everything under the sun, it does not necessarily mean that the seller has to agree to provide that information.
What Should I Never Share with a Buyer Before I Receive an Offer?
We’re going to move on to slide number nine. I want to also cover what should not be shared before an offer is agreed upon. And I want to define quickly here. We’re going to talk about this a little bit later but an offer being agreed upon — that starting point really is out the letter of intent stage. What I’m finding now with the seller’s market is that a lot of these buyers are jumping ahead and they’re putting together what is called an indication of interest or an IOI. And I am seeing this even in smaller deals such as a deal where maybe the revenue is just 5 million and you know which is obviously on the lower side of the lower-middle market, But I’m finding that buyers are trying to quickly get in front of businesses so they are using an indication of interest letter which is not as detailed as a letter of intent. A letter of intent is really when an offer is being mutually agreed upon as a letter of intent is negotiated. But prior to that, I am of the opinion and I have found great success in refraining from disclosing more than the executive summary level of information shown to you on the previous slide.
And that’s not an all-inclusive, but that gives you a flavor of what needs to be shared. Things such as your business tax return and internal financial statements for the past 36 months. Line by line, month by month. Even something as simple as the gross profit margin. Those things don’t need to be delivered before an offer is agreed upon. Businesses are not typically bought because of a gross profit margin. Although a very healthy gross profit margin can make for a very profitable and very cash-positive business. The EBITDA disclosed up to this point– that will speak for itself in terms of creating value or validating the value of a company.
Similarly, we talked about this a bit before human resource records, none of that needs to be disclosed before the letter of intent. Even aged accounts receivable and accounts payable reports — those if they are shared, everything should be redacted in terms of the customer name and also the dollars. So, there is a way to protect the seller by doing that and likewise legal agreements. There’s no reason to be turning over every legal document you’ve ever signed prior to a letter of intent. All of what I’m speaking of here are things that the buyers will have a right to see in due diligence. But that should be after a letter of intent to buy the business has been agreed upon.
Indication of Interest Letters
Similarly, as I said before, the indication of interest, has been something that we’re seeing more and more of and that is one way for buyers particularly to get in the front of the line since it is such a strong seller’s market, to indicate and emphatically impress upon the seller how interested they are. What we’re doing with those, pretty regularly now, is narrowing it down to three maybe four indication of interest parties and then beginning to negotiate letters of intent. And so, we’re going to move on to that topic.
Letter of Intent to Buy a Business
A letter of intent, as I said before, that’s really when things begin to heat up in terms of negotiations. That’s really when things get very serious. Whereas the indication of interest letter really means the buyers want to be seriously considered by the seller. The offer that is received should be discussed at large and at length before a Letter of Intent is received. And a lot of buyers don’t want that. They want to just jump to the letter of intent. Many of them are very sophisticated and they’re very good at producing letters of intent.
But for the seller — the seller now is in a position where they have to take that letter of intent — they absolutely must seek legal counsel which as everybody knows that’s expensive and a lot of sellers are averse to that. So, what I recommend is first you should have your CPA and your attorney on board already if you’re a business owner selling. But understand that, prior to getting that letter of intent, whether you’re working with your CPA, your attorney and an intermediary, the deal terms in general should be already part of the conversation that you’re having up to that point.
The letter of intent should have deal structure details which the buyer and seller have already discussed and agreed upon in general terms. An example of that would be whether or not the buyer intends to employ the seller post- transaction. Something that simple. It’s not something you want to be negotiating in a letter of intent after it’s been received.
Do I Need an Attorney Before I Sign a Letter of Intent to Buy my Business?
I jumped ahead a little bit there but the importance of hiring an attorney and when that absolutely needs to be done is worth talking about.
The best scenario is to retain an M&A attorney well in advance of launching a business for sale. In fact, my opinion is you should begin to shop for one and really interview them and make sure you’re comfortable with them because they’re going to have a very, very large impact on the success of your business sale. It’s just that simple. And I realize that the audience today I have some attorneys, some CPAs, as well as business owners. But you know I think it’s wise for business owners to understand that point — that who you hire as your M&A attorney is really important. I definitely would recommend doing that and having the deal attorney in place as your entertaining indication of interest letters and letters of intent. Having them onboard in advance will give them the opportunity to learn about your company and also to understand the nuances of the buyers who are coming to the table. And hopefully there should be multiple.
The other point is that the attorneys must be able to work well with other advisers. This is so important because it’s a team project. The attorney will need the CPA. The CPA will need the intermediary. The intermediary will need other parties as well that need to be brought to the table — other advisers. But the attorney and the CPA must be able to get along well with others. Unfortunately, I’ve been part of deals that that wasn’t the case and it’s very, very difficult to get them closed. It can be done but I really highly- recommend you find someone with a really great temperament to work with others alongside them.
If a letter of intent has been received and the seller is considering its acceptance, it’s very important to hire an attorney before signing it. I have been brought into situations where the letter of intent has been already signed. And frankly, at least two thirds of what needs to be negotiated has been washed off the table or just it’s gone. The letter intent is so important.
Due Diligence is Brutal When Selling a Business
The importance of preparation, especially when your business is not for sale, is worth mentioning here. And that because what comes after — follows the letter of intent — is due diligence. And so, when that begins, anything that has not been dealt with prior to Letter of Intent is without question put under a microscope. I find the due diligence phase, simply stated, is brutal. It’s brutal for the buyers. It’s brutal for the sellers and is really brutal for the intermediaries as well. And that’s simply because every contract in the business ever been executed, or should have been executed, will be scrutinized. And that’s painful because frankly a lot of people make a lot of mistakes in contracts that they sign. It’s just the way it is.
If there’s something in the public records of the business which has gone unnoticed, undiscovered or simply ignored, it will become an issue and needs to be resolved. UCC filings are typically still hanging out there. And in many transactions, if they’re not cleared up before the due diligence phase, or frankly before closing they can be very problematic.
Another area is customer concentration and I find that a lot of folks under- estimate how much customer concentration will impact how the price adjustment may or may not be made when negotiating through due diligence.
Of course, inventory needs to be cleaned up. And lastly, and very importantly, the liabilities both known and unknown will be under careful scrutiny, regardless of the type of sale it is. If it is an asset sale or even a stock sale. Either way could it be greater scrutiny around liabilities.
All of these can and should be fully considered and resolved before going on the market. Now that’s always easy to say. It’s not necessarily practical in practice. But for the business owners out there and also the advisers, I do encourage you begin to clean these things up. Do some exit planning in advance and try to resolve as much of this before you go on the market and you can save yourself a lot of heartache during the due diligence process.
Avoid These Four Things When You Receive an Unsolicited Offer
I want to talk about, lastly before we move into the next part of the webinar, about these things that you should never do when an unsolicited offer to buy your business is received if you’re a business owner or if you’re advising the business owners.
- Number one — don’t tell your friends. Asking a trusted adviser, somebody who maybe has sold their business and can be respectfully asked for referrals to begin to put your deal team together is very important. Don’t tell your friends about it. None of them have signed an NDA and people talk! It is just the way it is. I’ve seen deals fall apart that have gone all the way to closing because of just that simple thing — somebody told their friends when unsolicited offer came to their front door.
- Number two — giving the prospective buyer whatever they ask for. There is a time to do that and it is when you’re in due diligence. You’re in full phase or second phase of due diligence. Prior to the letter of intent, you do not — and you should not — give prospective buyers anything they ask for.
- Thirdly — telling the prospective buyer how much you want for the business. That’s especially problematic if you’ve not prepared, you have not done any planning, you’re not familiar with what adjusted EBITDA is, what the market is, you do not understand the difference between a strategic buyer’s price versus a financial buyers’ price. So, if a prospective buyer, who especially in an unsolicited situation asks you, do not respond to that. It’s a really, slippery slope to go down.
- And lastly — becoming distracted is really a problem. I have received many phone calls from folks asking about this topic and many of them tell me that they can think, they’re thinking about selling their business all the time, they’re not working on their business, they’re not dealing with the problems they’re having and they’re not trying to grow their business. All because of an unsolicited offer or multiple unsolicited offers coming in. So, you know my advice is to set aside the appropriate time to explore whether it’s the right time to sell and if you seriously want to go down the path to sell your business. And if not, move on. But make the decision and don’t spend too much time being distracted.
Ground Rules When Selling a Business
The next session to talk about here is the ground rules which should not be broken when a business is on the market. We’re going to talk about the single buyer dilemma, sharing the truth and what that all means, Country Club selling prices, about what a deal looks like that will allow you to close this transaction and how to stay on course.
The Single Buyer is Not How to Sell Your Business to a Competitor
We’re going to move along quickly into the next section. The single buyer dilemma is a very common problem in unsolicited business acquisitions because they perceive one option to be acquired by an unsolicited buyer. Immediately, that business is in a compromised position. And that’s because the single buyer puts the seller in a disadvantaged position because they have no leverage. If there’s no one else in the game and there’s no one else chasing this business for sale, then there is no way to create any form of competition. I do find that having an intermediary involved with this unsolicited offer will put the buyer on notice that the business will be made available to other buyers just by having an intermediary presence.
That doesn’t necessarily happen when you just have an Attorney or you have a CPA or even both because CPA and attorneys are not in the business of finding buyers. So, you know I tell clients often folks that contact me a single buyer, especially in the seller’s market, is simply foolish. So, I caution anybody who’s in that situation to just keep that in mind as you as you’re contemplating your sale.
Sharing the Truth: Asset Purchase Agreement
Sharing the truth is extremely important in order to eventually be able to close your deal. By finding other buyers bring to the table, you’re able to negotiate between parties and create much more demand for not only the business but obviously price, terms and other conditions. Communicating with solicited and unsolicited buyers that they are pursuing these other acquisitions is very wise.
Sharing the truth, when it comes to due diligence, is an extremely important concept that many business owners, who are selling, are unaware of. And that comes down to the fact that once the purchase agreements are drawn up and at least the first version of those, they’re going to include reps and warranties which will state that the seller has disclosed the truth. It seems like a benign statement. You know it says yeah, I told the truth — I told the whole truth. The problem is that if there’s been something that’s not been disclosed that you’ve not been truthful about (I am speaking of a business owner), the Asset Purchase Agreement or the Stock Purchase Agreement will likely have a way to cause the seller problems post-closing.
So being truthful and letting everyone know exactly what’s going on in your business is going to benefit the seller much down the road as opposed to keeping secrets and hoping nobody finds out. Again, a lot of business owners are unaware of that and it can cause them a lot of problems down the road when they negotiate the terms of the asset purchase agreement. Not only through the due diligence and closing phase, but post- closing.
Beware of the Country Club Selling Price
We’re going to talk now about the country club selling price. This actually came from a war story of mine where we were working with a business owner who was selling and he had a number. He had a number in his head. He had several offers that did not include the number he was looking for. And it turned out that he was being offered somewhat less, but not much less than what he had in his head, he needed to get. Well as it turned out through many conversations with this fellow because he had phenomenal offers on the table. He said to me “you have to understand Holly, I have to get $X because that’s what I told my buddies at the Country Club I was getting. And we were able to work it out. We were able to convince him that he actually was getting $X plus $Y as a result of how the deal was structured. He actually was going to receive more but he was objecting to the deal because he didn’t understand. And he had already made his peers aware of a number that he got.
So, I recommend really thinking through this and being very careful. Many business owners think that they must share or feel compelled to share their price of their business with their peers — could be at the Country Club — it could be anywhere. But it just so happened to be my client said that. That’s something that has stuck with me and I encourage business owners to be very careful about.
Win-Win Deals Close
The most important thing to understand is the deal structure and the terms are more meaningful than the selling price. Yes, the selling price is important. It’s part of formula but it is only one component. It is only one factor in the formula. We’re going to cover this topic a little bit later in the webinar. So, I do want to move on because I don’t want to get behind.
We do want to talk about the key to getting a good deal that you can live with. And that really surrounds what’s good for both parties must prevail. The deal structure has many ways to take a good deal for one party — the first win and make it deal a good deal for both parties — a win-win. And this can be done again through structuring asset sales versus stock sales. I’m not going to get into that topic today. There is quite a bit of information that you can learn about that if you are unaware of that.
The purchase price allocation in an asset sale deal is very important. It’s important to both the seller and the buyer and it’s another way to get to a win-win. Earn outs are used typically and they’re very effective, even though a lot of folks claim they don’t like earn outs as a seller. I have found them to be very effective if they’re properly done and we’re going to talk about that in a few minutes as well.
We also can do a lot with employment agreements, leasing agreements if there is real estate involved. And then another tool that’s really helpful to get to win- win for both sides is using deemed asset sales as corporation under Section 338 (h) 10. I’m not going to get into the details. I could do a whole course on that. We’re not going to touch on that. Whether you’re a business owner or whether you’re an adviser, just keep in mind these are some of the tools that your intermediary and your deal team can use to bridge gaps and to get both parties actually to the closing table.
Focus on Business Growth When Selling your Business
I’m going to move along here. Last part of this section is with regards to saying of course as the deal progress. What I have found is business owners can become very overwhelmed when their business is for sale. I always tell them it’s very important for them to isolate the sale from their day-to-day operations and their thinking. It’s very important for a business owner to stay the course by focusing on sales growth and protecting EBITDA. If they don’t, they will pay for it because most deals take anywhere from three, I’ve seen as long as nine months, to close from start to finish.
So, if you’re going to be running your business for the next better part of a year, you’d better be focusing on that year because that will be impactful when it comes to due diligence. The buyer is going to want to see P&Ls all the way up to the last week that you own the business. And if there’s a large fall off, it will come back to haunt you. So, focus on growth. Focus on protecting EBITDA is very important. And cleaning up what’s necessary. If there’s inventory to be dealt with, if there’s physical premises that needs to be dealt with — if it is going to be sold, deal with it. Don’t wait until closing because it only gets much more difficult in the months and weeks leading up to the final closing or the transfer.
One of the issues that I have found also is some time business owners – when they realize the value of their business — many of them begin to spend it –where even if it’s in their own mind. They start buying a vacation home or they’re thinking about buying a boat or anything. It doesn’t really matter what they’re buying. But a lot of energy starts to go into what am I going to do with these proceeds. With that happening it becomes problematic. Their thinking is in the wrong areas. They need to be going back and focusing on keeping their business moving forward and keeping their business cash flow positive and the EBITDA strong. Unfortunately, it’s difficult to stay the course. Selling a business is time-consuming and very emotionally-charged. But that said, that’s the advice that I give clients who are contemplating the sale of their business.
What Does an Offer to Buy your Business Look Like?
We’re going to move into the next section of today’s webinar and talk about what the offer should look like and some of the other information is related to counter offerings. We’re going to talk about timing of a letter of intent — how to handle that. Specifically: deals tone, company culture and specific terms in the letter of intent.
Setting up the Deal Framework When Selling your Business
We’re going to go backwards a little bit in where we were. We’ve been talking most recently here I’ve been chatting about the actual sales process and getting through due diligence. But I want to go back now to what an offer should look like. It’s really important to understand, again I think I mentioned a little bit ago, that a lot of folks spend a lot of time and I believe it’s unnecessary time on negotiating a letter of intent when they have not yet really framed a deal with a particular buyer. And so again, it’s expensive, time consuming, energy consuming to negotiate a letter of intent. So, we really want to get to a good deal by starting with let’s have a great conversation with the business buyer about what the deal framework is going to look like. If you’ve done that, and that can be done by the use of a concise and accurate executive summary. We covered that in an earlier slide. That’s what’s needed he needed to have a meaningful conversation with the buyer.
They’re going to ask for some additional information which you should feel comfortable providing in redacted form and protecting you in terms of customers and specific things that may come back to bite you.
But once that’s done, then the next thing that you should be willing to do is to entertain a letter of intent if you know that there’s a good cultural fit between the buyer and the seller, if a basic deal structure has been discussed and agreed upon and if the mutual goals for the seller and the buyer are reflected in the deal structure. Once you reach that point, you’ve got the framework for an offer and it’s the right time to ask for a letter of intent.
Again, anything before that — if you’re starting to look at letters of intent before you’ve had those conversations with the buyer or buyers — you’re really wasting time because you’re starting to negotiate when you don’t really have the full picture. I’d like to remind everybody at this point that it’s important to recognize that when you have a letter of intent in front of you, even though they are nonbinding by nature, you are beginning a very serious phase of selling the business and that is you’re negotiating. And it’s never wise to negotiate without legal counsel.
So, your attorney, your M&A deal team attorney, should be already on board. Similarly, your CPA, or a CPA if you don’t have a CPA whose got the skills in M&A or they have not done deals of the size of that business owners find themselves in, they should find one. All of that should be already underway. The CPA should already inform you as to how much tax you would pay under a specific type of sale, whether it’s an asset sale or a stock sale, those are the two ways businesses are sold. And having that just general understanding going into the negotiations of a letter of intent and into the negotiations with the buyer is really important.
Be Prepared — The Letter of Intent May Have an Expiration Date
And something that’s really overlooked often is the fact that many buyers, sophisticated buyers, will give you a letter of intent with an expiration date and it may be as few as 48 hours. Generally speaking, it’s not. But I have seen deals that you’ve got 48 hours to make this decision on this letter of intent. I’ve seen them also that you’ve got two weeks. Generally, it’s about a week but that’s not a lot of time to gather up the CPA gather up your attorney and put everybody together and decide how do we negotiate this. So again, that’s why it’s so important to have the CPA and the attorney on board and well-acquainted with your business and the buyer.
Letter of Intent (aka the LOI)
The letter of intent — we’re going to talk now a little bit about it and some of the things which is important to understand — beyond the fact that when know you are starting to negotiate when you have a letter of intent in front of you.
The Letter of Intent No Shop Clause
The letter of intent is a non-binding agreement — I mentioned that before — for both the buyer and the seller. But that does not mean it’s not important. It generally takes the business off the market once a letter of intent has been negotiated and signed by both parties. Typically, that letter of intent presented by the buyer will have a clause in it that says there’s a “no shop” clause. That means that the seller must pause the sale of their business until a certain thing happens and it could be the deal closes, which in such a case would not put it back on the market. It could be for a period of time. It might be 30 or 60 days. Or it might be when a breach of the contract occurs or the breach of the agreement occurred. There’s many nuances to a no shop clause. But that said, the most important one for a business owner to understand and their advisers, is that it will take most likely the business off the market. So, it’s very important.
LOI Deal Term Negotiations Can Benefit the Seller Greatly
A well-drafted letter of intent will set up the basic deal terms and can be useful to the seller by preventing the buyer from watering down the deal in due diligence even if they don’t discover negative factors. I can’t emphasize how important it is to get some very important deal terms into a letter of intent. Because by doing so, you’re going to stop the buyer from having the opportunity to negotiate down the deal that you’ve already agreed to. What is also important to understand about the letter of intent is that even though it’s nonbinding, it doesn’t mean that the seller or the buyer can just walk away. They must negotiate in good faith once the letter of intent has been signed. And that is important and is something to keep in mind. You don’t want to sign a letter of intent and go on vacation for six weeks and say well maybe I’ll look at it later. You want to you want to see it through.
Establishing the Deal Tone in the Letter of Intent
The letter of intent should also set the tone of the deal and if properly drafted and properly negotiated it could eliminate many surprises. And I alluded to that in the last slide. The conversations up to this point with buyers and sellers should be meaningful enough for both the buyer and seller to be able to say this is what we usually want to achieve. And this is what we want it to look like post-transaction and post-transaction maybe a year from now or two years from now. This is our ideal and we agree to those ideals. From that point, the letter of intent should be just crafted around all of those ideas. And that may mean something as simple as making sure that it’s clear whether or not key employees are going to continue to work and for how long and under what kind of circumstances.
Defining the Company Culture in the Letter of Intent
Similarly, the company culture should also be weaved in a letter of intent. We talked about the employees a minute ago but he company culture has a lot to do with the staff — whether that culture continues or is basically negated post- closing. And I am speaking of the selling business’ culture. If another buyer, particularly a strategic buyer, comes in and is buying a business, the culture may not fit at all. And that should be obviously vetted before you get to letter of intent. But by dealing with the key employees and how they’re going to be handled post-closing down. And I’m talking about not only the day after, but weeks and years later really can make a big difference in the long-term success of an acquisition. So, one of the ways which is really important to achieve that is to be very clear in the letter of intent whether or not key employees will be interviewed by the prospective buyer and if so when. Because that can be a real point of contention with lots of friction can occur. There’s a lot of anxiety surrounding key employees and any employee at all. And key employees, in particular. Whether they’re going to have employment agreements or stay bonus plans if they’re in place and what that’s going to look like in terms of the transaction. All of this is really very important.
Negotiating Deal Terms in the Letter of Intent
We’re going to move on and talk about terms and conditions in the letter of intent and what you don’t want to skip. Again, these are pretty basic, but I’ve seen some letters of intent that don’t address these issues. The difference between an asset purchase versus a stock purchase is very vast and a very different transaction both in the way the deal is done, the way the documents are drafted and the consequences in terms of who’s holding liability and where are the risks. So, I mean I’ve literally seen letters of intent that buyers have presented and sellers have signed and they have not identified whether it was an asset sale or purchase sale. So that’s really basic and really important!
If it is an asset sale, the purchase price allocation. That doesn’t necessarily mean that’s how it will end up in your asset purchase agreement but if you’re representing or you are the seller and you’re doing an asset deal, what you’re going to need to be certain of is that you have at least something in your favor when you’re going into the negotiations at the end of the transaction. And I’m going to touch on that in a little bit. But trying to do a purchase price allocation for the assets that are being acquired is a good thing to try to accomplish.
Employment agreements again for owners and also key employees post-closing.
Setting the Working Capital Target for Closing in the Letter of Intent
Very important is a working capital target closing in a stock deal. I have seen many unfortunate folks that ended up in letters of intent that did not have working capital targets identified. And this is something that if you get down the road and you don’t have it established, the buyer can take great advantage of you. Similarly, a seller can also take advantage if they know what they’re doing by stripping out cash and receivables and leaving very little on the balance sheet for the buyer. But that said, that’s a very important thing.
Other Letter of Intent Negotiations
Identification of the closing date, indemnification limit, caps and escrow provisions. These are all important things that if you can negotiate out, you’re going to have much less difficulty getting through due diligence and the asset purchase agreement negotiations.
Negotiating Terms and Conditions in the Business Purchase Agreements
Okay. We are we’re finished with part one and I’m going to do now is shift our focus towards negotiating terms and conditions in part two. I’d like to talk through the selling price. I’ve touched on this a bit, but I want to cover this again a little bit more detail. As I said before the selling price means very little in many deal. Now that’s not to say that a selling price of let’s just say 8 million dollars versus the selling price of 23 million dollars doesn’t matter. That’s a big difference. But that said, what we find is that deals might be off by maybe 20 percent in terms of the selling price. But through deal structure, whether it’s stock versus assets, that can have a tremendous impact on the cash the seller actually ends up with after the closing. Pre-deal planning for C corporations for example. There are opportunities with the C corp built-in gains taxes that can mitigate and minimize the amount of taxes paid by the seller. Again, that’s something that really has to be done in advance. But keep that in mind that is something that can have a very large impact on whether or not what kind of cash ends up in the seller’s pocket.
Deemed Asset Sale for S Corps Can Improve the Outcome for Buyer and Seller
I mentioned this before the S Corp Code Section 338 (h) 10 negotiations is a tool that can improve the cash retained by both the seller S Corp shareholder and the buyer. It is basically a compromise that is permissible in the Internal Revenue Code that allows a buyer to take advantage of the ability to have access to depreciate even though it’s a stock transaction. That’s it in a nutshell. There are taxes that are computed on both sides. Tax savings, I should say, computed on both sides of the table. The seller’s side and the buyer’s side and that there’s a compromise that’s made. Oftentimes that is really negotiated when you get past the letter of intent. Sometimes it is included in the letter of intent but typically I see that negotiation done after the letter of intent. But it’s another point supporting the fact that a selling price means very little. What really means much more is the structure of the deal. And then other things such as earnouts and employment agreements, installment payments and all of those various terms. There are other tools as well. These are some of the high-level things that can be done that can really make a big difference.
Selling a Business Deal Derailments
We’re going to talk about some of the things that can cause a deal to derail. Most deals fall apart for reasons that neither side sees coming. One of the things that I have observed is that whenever there is a sudden shift in perception of integrity on the part of one or the other or a demonstration of lack of integrity, the deal is dead. There’s no going backwards. There’s no patching and there’s no negotiating. I have found over and over if a deal is going to surprise everybody and not close, it is because of an integrity issue. So that’s something to be mindful of whether you’re a buyer or a seller or an adviser.
Big Egos are Problematic in M&A Deals
I also find that the egos that are involved in selling the business really can have really wreak havoc on the deal. These include the egos of the professional representatives as well. Business owners by their nature are very strong-willed people and I love that about them. I am the daughter of a business owner and entrepreneur. I’ve owned multiple businesses myself. My husband has as well. And I say that because I understand that temperament. They’re very headstrong and they can be very difficult especially when things get down to the end. And what’s important to understand, whether you are an adviser or a business owner, is that you have to be mindful that your representatives that you have on the deal team have to have the right temperament to deal with the heat. Because it will be very difficult no matter what. I’ve never seen an easy deal go through. Ever.
And what I found is that those who have the temperament can step back and let their own ego aside to help make the best decisions for their clients and bridge gaps where they can be bridged, those deals get closed. I caution anybody in the webinar to really sit back and think about that as you’re hiring professional advisers. And if you are one, whether or not you have the temperament to deal with the various parties and all of the egos that will be represented there.
Employees Can Cause Problems When Selling a Business
Employees who do not know about the pending sale can also sabotage and I’ve seen this unfortunately a couple of times. It’s typically when employees are not brought into the fold and not aware of the business being for sale. So, I’m not a big fan of keeping it secret to the closing day. I know a lot of business owners prefer that but in general terms it’s not usually a good outcome. It usually just adds more to the drama.
Mother May I Please? Clauses Can Prevent Deals from Closing
Lastly, the other one is very similar are those third parties such as landlords, key customers and lenders. Certain lenders, certain banks, certain loan or credit facilities include clauses that I call the “mother may I please? clauses” which basically say that you can’t sell your business unless you get my permission. And those should all be on the table. Everybody should be aware of those and have those vetted and prepare those parties before the deal is about to close.
Deal Fatigue is Dangerous
And lastly and very importantly is deal fatigue. Deal fatigue can creep in and it’s very dangerous when the seller has not been able to meet expected deadlines or buyers make a negative discovery which has not been disclosed to them. And especially if it ties back to integrity. Deal fatigue kills deals over-and-over again. So, having a really tight deadline and having folks working and diligently keeping on task to meet the deadlines is really important. Because as you start extending deadline after deadline, eventually one of the parties may very easily have enough and then you’re in trouble.
Finding Common Ground Between Business Buyer and Seller
We’re going to talk also here about finding some common ground. There’s a lot of things that I like to see and I recommend in good deals you can put into your letter of intent. And that is when the letter of intent has been offered, a lot of times it may not necessarily please the seller. But there are ways that both in the letter of intent and post letter of intent, meaning during the negotiation phase, you can pull these things in. And these are just a few but these items that I’ve identified here are employment agreements terms for the seller, installment payments–rates in terms, earnout agreements and 338 (h)10, if appropriate, those are things that you can negotiate. They’re just simply tools that can help bridge gaps and I have found those to be really very useful at the right time.
Understanding the Buyer’s (or Seller’s) Motives
The last point is really one that I have found more and more to be very helpful as I’m working with business owners and other intermediaries on the other side as well as other advisers. I have found that if you’re representing the seller and you have the opportunity to really get to know the buyer and their motivations, whether it’s a PE firm or strategic buyer or just somebody who wants to purchase a business. If you can build a relationship with that person or group and really understand what it is that’s motivating them to sell their business, the chances of closing that deal is very important. And I think the intermediary that you hire needs to have that skill. I’ve known a lot of business brokers that are fabulous at this and I’ve met a few that aren’t. Same thing with you know M&A folks. It doesn’t matter what their title is but some of them are fabulous at it and the ones that are become really successful in this business. And I think that’s very beneficial for business owners to understand and just to give some thought to as you’re making those decisions whether to sell and who to work with. And the other thing is that the sellers should be very comfortable to say: “this is really important to me” as well as “this is really not important to me” and to have that freedom to say that. Again, a lot of folks I have come across are hesitant to do that — business sellers and buyers. And so I encourage you, whether you’re on either side of the table, to be emphatic about what you will do and what you will not do — what is acceptable to you or not.
The Importance of Deal Concessions and the Deal Team
And then the team members need to assist the sellers to determine when to say no and when it’s okay to agree to a concession. And I have found that sometimes the deal team can have differing opinions on when it’s okay to say: “okay we’re going to give on this particular issue” or “no we’re not going to”. So again, it goes back to — your deal team needs to be really working well together, respectful of each other and willing to listen. And above all, being really willing to listen to the seller or the buyer, depending on who they’re representing. And lastly a good intermediary will manage these relationships for the team. They will help everybody work together. We don’t want that to have a long-term effect and the deal not go through and that’s what I’m always fearful of when it happens. So just wanted to spend a few minutes to talk about that.
Inherently Problematic Deal Terms and Conditions
A couple of things we’re going to talk about we talked about before that I want to talk about again just to give you a little bit more insight with specific terms and conditions which may prove problematic.
Earnouts can be difficult to determine where they may go wrong. And were going to speak on that in just a few minutes. Similarly working capital targets. A working capital target is something that must be understood by both parties. It’s not your responsibility to make sure the other party understands them but if you’re the seller and you have a working capital target in your stock acquisition deal, it is paramount that you, your CFO and your controller or whomever it is that manages your balance sheet, completely understands what that is. Because it will cost you at the closing table if you don’t.
Establishing a Working Capital Target
At a high-level, working capital target is just an identification of the value of your working capital — whether it’s cash, inventory, accounts receivable minus accounts payable. It may include line of credit it just depends again how that’s all negotiated. Generally speaking, it’s the net of cash, accounts receivable, inventory and less your accounts payable or short-term capital. So that’s something that’s really very important.
Key Employee Agreements
And lastly, you know the key employee post-closing the employment agreements. Their spouses maybe a factor, especially if they’ve not been negotiated in advance and most of them have not. I find also you may find multiple employees will sort of gang up together and try to sabotage — again key employees — if they’re part of the deal or a requirement to close the deal. I prefer, and I always recommend giving consideration of, establishing stay bonus plans for key employees well in advance of selling your business. That prevents that kind of drama from occurring and it keeps the spouses of the employees out of the equation.
Seller’s Beware of Reps and Warranties in Asset Purchase Agreements
We’re going to talk also here about the importance of reps and warranties, especially for the seller. I mentioned before about how important it is to be truthful in your due diligence phase to make sure that everything’s on the table. You know, if they’re asking for contracts, you find every contract that’s been signed in the past and you put it out there. You don’t hide anything. The buyers and their legal counsel will work very hard to make the deal’s reps and warranties very broad in scope. And they do this purposely because of the more broadly the reps and warranties are defined, the larger the net is for you to make a mistake. And in doing so, you might have to give back as a seller some of the proceeds from your sale or forego some of the money that’s in escrow. So, it just makes it a lot easier for the buyer and it’s really important that you rely on — first of all be truthful, being forthcoming, and lastly listening to your legal counsel and making sure that they give you good guidance and help you understand what’s important to negotiate. And those words in the reps and warranties are extremely important. The seller being truthful and forthcoming with this information during the due diligence phase is paramount. It is extremely important. I can’t emphasize it enough. I just hate to see when business owners are reluctant to do that.
Due Diligence in M&A
Due diligence — I am going to move on to the next screen. We’ve only got about another seven minutes before we open up Q & A. But I do want to talk about due diligence. Due diligence is a very testing and very difficult time for sellers. Buyers — you may find that they were very warm and fuzzy. And they will suddenly turn into mean, analytical sharks. And that’s kind of part of the process. That’s what happens. Not all the time, but often it will and they’re going to push. Having deal terms negotiated on your behalf and having that deal team able to handle this pressure is very critical to getting you to the closing table or getting the business owner to that closing table. Always keep this in mind because deal fatigue is definitely problematic. Too much time will kill even a very good deal. So, I caution you to really give that some serious consideration.
Who Should Negotiate an Earn Out When Selling your Business?
We’re going to talk about earn outs and who should negotiate them and why. It’s very simple: don’t allow someone to negotiate an earn out who doesn’t know your business intimately. And I say that because if they don’t, they will not know the nuances and they will not know where things can get tripped up. If somebody knows your business and how it makes money, they’re in a much better position to negotiate an earn out that’s going to actually pay out.
They also need to have reasonable clarity regarding the ability of the business to reach its financial goals in the future. If your earn out requires you to do $25 million next year in revenue and $30 million the year after and you’re doing 15 million this year, you’re very unlikely going to meet your earn out. And you’re not going to get paid. So that’s really important to have a person who understands that and that person should also have access to the financial information and all the factors to develop the earn out model.
An earn out model is simply just an example for both parties to sign off on. I am a firm believer that the model should be included as part of the final sale agreement as an exhibit and signed off on. I’ve been involved with many of these. I’ve seen them done very well and I’ve seen them successful because both parties in that process of building the earn out example, flushing it out on both sides of the table, and everybody coming to a final agreement. They’re just much more achievable and in the end a better product.
Who Do You Need to Help You When You Sell Your Business?
I’m going to move on in winding up today the last piece of this is to give you some thoughts about who you would call upon when selling your business. I’ve spoken many times today about the intermediary and their importance or a business broker. For the attorneys — they should be well- versed in M&A (mergers and acquisitions), employment law, intellectual property, real estate and any other deal matters’ specialist. So, if he’s got a company maybe it’s a health care company, you need to have an attorney who specifically works in health care. Now you’re not going to have or it’s very unlikely to find a single attorney that has all of these all this experience. They don’t. It’s going to mean that a large or mid-sized firm is necessary so that they can bring in all of the various legal counsel to help you or help the business owner close the deal.
The CPA is very critical as well and they need to be someone who understands transactions and very importantly understands the need to be responsive in a timely manner. No criticism of CPAs. I am a CPA. In my past life, I did all of that type of work and I understand though how much time they have and how much difficulty they have pushing tax returns out the door for them to also be doing transactions is very difficult. So be mindful you need to find somebody who really specializes in doing these transactions.
Human resource advisors are very important too and more so towards the end of the deal. But generally speaking, that needs to be thought of as well.
And an escrow agent. That’s something that your attorneys, CPA and M&A folks can bring to the table at the right time if the M&A process requires an escrow agent.
Okay. In summary as I’ve mentioned many times this afternoon, unsolicited offers to buy businesses are plentiful. I probably have at least one voicemail on my phone since the time I’ve been speaking with you this afternoon. I’m getting multiple calls a day because of the folks that are looking for assistance with this. And so that’s not going to change anytime soon… I don’t believe. The sellers can be prepared to address unsolicited offers with some thought. I hope today what I provided you gives you a little bit of a guide and some points to be focusing on if you’re unaware of them to this point.
And lastly, it is really important to start building the deal team. There is a lot of phenomenal intermediaries and business brokers around the country — North America for that matter — and beginning to build those with their related attorneys and CPAs and the folks that they work with in their community is really important. And if you’re a business owner, I encourage you to start doing that today. If you’re an advisor, I encourage you to go out and affiliate yourself with others so that you can be part of those deal teams.