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Encountering a multitude of client types on both the buy and sell sides, there exist several uniform factors that make or break transactions. While the unique circumstances of each deal can vary significantly, a number of common threads can make or break a divestiture or acquisition, a sell or buying transactions. Here are some “do’s and don’ts” of successfully managing a transaction from both the buyer and seller perspective.
Seller do’s and don’ts:
Decisiveness: When it comes to being a successful seller, decisiveness is key. It is imperative to thoroughly contemplate all the major decisions that may come into play in a sale process. This way, you and your working group have a shared philosophy and action plan to respond to both the known and unknown. Indecision or deviating from a planned course is one of the top reasons transactions fail, as it can lead to reevaluating, renegotiating, and re-trading. As a seller, do develop a transaction philosophy, and do map your game plan and stick with it. Don’t waffle and fall victim to indecision or a significant change in mindset.
Post-sale planning: It is critical to have a post-sale plan in place. The best way to establish your plan is to answer the following question: “Why am I selling right now?” The answers to that question are numerous, but are led by one or two strong desires. Let’s say the answer is you are ready to retire. A retiree’s post-sale plan should focus on wealth and life stability. Have you worked with your advisors and tax counsel to understand valuation, net proceeds, and other sources of funds, so you are able to maintain a safe, stable cash flow to live your life comfortably?
A multi-brand operator might be selling to focus on a different aspect of their business. Are you divesting one brand to concentrate on another? If so, your post-sale plan should address how your operating platform must evolve to sustain an alternate business model. We have advised sellers of large, stable QSR brands on how to evolve their development, marketing, and training infrastructure to adopt a fast casual development agreement. The two businesses are certainly similar, but the infrastructure needs and cash flow planning vary, particularly in the early years. Also important is that all post-sale planning should happen in conjunction with your decision to sell. This way you know up front if you are trying to sell all of your assets or if it makes more sense to retain some.
Do understand your post-transaction operational and financial picture as part of the decision process. Don’t go into a sale blindly and unsure of your future plan. If you are a franchisee looking to sell your restaurant assets, it would behoove you to be aware of your franchisor’s growth and acquisition strategy. Is your franchisor currently selling company-owned restaurants, acquiring franchisees, or developing new units themselves? Are they looking to bring new franchisees into the system or expand with existing ones? Even if the answers to these questions are not perfectly known, a thoughtful analysis of your business geographies, operational and financial metrics, and development rights will help you prepare for the franchisor’s reaction. It is in your best interest to be well versed in your franchisor’s approval guidelines and expansion plans and select a buyer accordingly.
Do know your transfer rights, and do be aware of what makes a buyer attractive to your franchisor. Don’t let the franchisor dictate your process, and don’t select a buyer that won’t pass their approval process or provide them leverage to force an alternative that is less than ideal. Identify and own potential problems. It is almost impossible to operate a multi-unit restaurant business without experiencing some issues over time. Store closures, lease expiration and assignment issues, specific unit performance problems, environmental issues, and more will affect your business at some point. It is understandable to want to mask any struggles your company has experienced, but it is crucial to resist this urge. Any problems concealed initially will surely be transparent during due diligence, which discourages the buyer and hinders the transaction process. A constructive business issue identified late in a transaction is more punitive than if articulated in advance. Do have any business, operating, and legal issues identified, and do have a plan for addressing them before bringing a transaction to market. Don’t ignore problems and think prospective buyers won’t identify or overlook them.
We would take other perspectives of this article next week as we discuss further, however you can contact me for business advisory services and training – send me a message via WhatsApp or SMS.
Nwaodu Lawrence Chukwuemeka (Ideas Exchange Consulting).
nwaodu.lawrence@hotmail.co.uk (07066375847).
