Risk Reduction – A good way to get an Extra X

Reducing Risk will help earn you an extra X of value for your company, so how do you reduce the risk associated with the purchase of your company?  Here is a list of my top tips for risk reduction:

·         Have rock solid set of conservative financial statements

·         Assemble a complete electronic data room – all contracts, financials, human resource records, etc.

·         Clean up your contracts (can you assign them to the buyer?)

·         Understand why the acquirer is interested in your company so you can feature those attributes during the diligence process.  An example: The acquirer is interested in your penetration of specific geographic markets.  Create the reports necessary to show geographic market penetration and potentially the growth rate of those markets.

·         Build a solid team (no one is going to assume that you the founder will stay for any length of time but they will look to your top captains – I call this a leave behind team)

·         Foster a can do attitude – paint the picture of how the two companies will fit together – help the acquirer prepare an integration plan

The goal in taking the above steps is to lower the buyer’s perceived transaction risk.  I have been in both situations where the records were a mess, there was low level talent, and I have seen the other side where the records were immaculate.  I was willing to pay a little more for the latter as the organization of the company’s records and diligence binders gave me confidence that I was not going to run in to any whammies after the close.

One more note on the contracts – the one thing that I have seen blow deals the most is poor contracts.  Non assignable contracts or contracts that gave the parties outs or special rights in a change of control situation will damage the value of your company or KILL IT altogether.  Manage your contracts carefully.

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