Sales & Divestitures

We have sold businesses in every imaginable industry, from accounting practices to yacht charter companies, ranging in value from $50 thousand to $20 million, while mainland based investment banking affiliates have sold businesses valued up to $300 million.

We have sold businesses in every imaginable industry, from accounting practices to yacht charter companies, ranging in value from $50 thousand to $100 million. We can sell the entire company or help divest or “spin off” a division or subsidiary.

We can find buyers worldwide – private equity groups, multinational corporations, immigrants seeking investor visas, Hawaii “ex-pats” living on the mainland – or facilitate the sale to a local supplier or a management team.

We employ a proven, six phase process, as illustrated below. Three phrases are “presale”, and may occur over months or years before a transaction, and three of which constitute the core selling process. Not all clients go through all phases. Those who need to sell quickly typically jump directly to Phase 3, business valuation.

Six Phase Selling Process

Phase 1: Exit Planning
There are a wide variety of ways an owner can exit a business.  Sale of the entire business to an outside party is just one option, and far from the most common.  Other options include: sale or gift to family member, merger or acquisition, recruitment and/or development of personnel to replace owner, management buyout, solicitation of new investor/partner, managed close down, liquidation or franchising.

The right exit option depends critically on the owner’s objectives in the following six areas: financial, lifestyle, professional, business continuation, stakeholder concerns (e.g., employee, family), and legacy/ community.

A plan is developed in consideration of the above objectives, and a variety of additional inputs including business appraisal, assessment of business strategic position, assessment of business operations and systems, financial review, value improvement opportunities, assessment of management capabilities of owners and key employees, and owner health issues.

We develop each exit plan in a highly customized way, in conjunction with the owner, key stakeholders, and advisors (e.g., CPA, wealth advisor, estate planning attorney).  The resulting exit planning is comprehensive and addresses at least the following topics:  prioritization of exit options, financial and retirement plan, estate, trust, and tax plan, business continuity plan and succession plan. 

For much more information, review the Exit Planning section of this web site.

Phase 2: Positioning & Preparation
Through the exit planning process, we gain an in depth understanding of the owner’s financial, professional, lifestyle, stakeholder, legacy and business objectives.  If a decision is made to prepare the company for future sale, Phase 2 may be initiated (or, if it’s already understood that sale to an external party is the preferred exit strategy, we may begin at Phase 2).

In Phase 2, the gaps between where the owner and business are today, and the desired end states are identified and quantified.  A comprehensive Value Improvement Plan is then developed to close the gaps, fully positioning and preparing the company for sale.

For example, suppose that to meet financial and lifestyle objectives, an owner needs to sell a business for $8 million, but it is worth only $5 million today.  The owner needs a plan to enhance the value of the business by $3 million. 

Inputs to the planning process may include detailed assessments of the following:

• Business valuation
• Expected tax consequences of a sale
• Anticipated concerns of likely buyers during due diligence (critical!)
• Drivers of business value
• Market/ industry conditions, trends and timing
• Transferability of key assets (e.g. leases, contracts)
• Business strategic position (e.g., SWOT and competitive analysis)
• Business operations and systems
• Current company business and marketing plans
• Financial performance (on dozens of income statement and balance sheet metrics)
• Customer turnover, satisfaction and trends
• Merger and acquisition opportunities
• Organic (internal) growth opportunities
• Cost position and cost reduction opportunities
• Owner and key manger leadership/ management capabilities
• Technology and product lifecycle
• Real estate, facilities and equipment
• Employee recruiting, training and compensation plans
• Product/ service breadth and quality
• Legal and legislative issues

The Value Improvement Plan incorporates the above assessments, and provides a detailed action plan and specific recommendations for positioning the business to realize the owner’s desired value, and expected timeframe to implement.  To develop the plan, we offer high level direction and advice, proven techniques and strategies, but also refer out frequently to management consultants and other experts who specialize on areas critical for any given client.

Phase 3: Business Valuation
The third Phase of the pre-sales process is to develop an estimate of the value of the business.  Many clients, particularly for businesses valued below $1 million, begin here, as the owner has made a decision to sell now and needs to take the business to market “as is”.  Alternatively, a valuation may already have been completed done during Phase 1 or 2, but requires an update to account for changes in the market and business since the last appraisal. 

There is no simple formula for calculating the value of a business.  For much more detail on how businesses are valued, review:  what is my business worth?

We can assist clients seeking a business valuation in two different ways.  We can provide a complimentary and detailed Broker’s Estimate of Value, or refer clients to a cost effective, certified appraiser to develop a Formal Business Appraisal.    

Our Broker’s Estimate of Value provides a detailed and in depth analysis of a client’s business based on historical financial performance and a subjective assessment of dozens of qualitative factors.  We adjust for owner “discretionary (personal) expenses” paid for by the business, extraordinary expenses, debt payments and other important factors.   Our analysis is based on evaluation and benchmarking of a client’s business vs. statistics on the sales of hundreds of (nearly) comparable businesses.  The purpose of this informal valuation is to give the owner a rough estimate of the fair market value of the business.

A Formal Business Appraisal provides a more precise and detailed opinion of business value.  We have established relationships with the leading business appraisers in Hawaii and on the mainland to develop the appraisals.  They can delivered in as fast as one week, and are affordably priced.  A Formal Business Appraisal can be used by the owner to assess the potential value for sale, or for matters requiring a formal appraisal, such as divorce, partnership buyouts, S- to C-Corp. conversions, etc.

Phase 4: Preparation of Selling Memoranda
An adage reads: “You only get one chance to make a first impression.”  This certainly holds true in the sale of a business.  Prospective purchasers first impression of a potential acquisition is based the selling memoranda, the prepared materials that provide a detailed overview of a business for sale.

In Phase 4, the selling memoranda are prepared.  There are several versions, a disguised executive summary that gives a brief introduction to peak buyer interest but withholding identity of the business, and more detailed versions that are provided after buyers sign non-disclosure agreements and are qualified and prove their seriousness.  Memoranda may be prepared in a variety of formats, including paper, PDF, spreadsheets, Internet, and digital video, to fully and persuasively communicate the opportunity.  The full written versions range from 10-100 pages in length, depending on the size and complexity of the company.  The memoranda are prepared by VR, with input, review and approval by the client. 

Topics covered in the various selling memoranda may include the following, depending on the business:

• Executive summary
• Market and industry environment
• History
• Owner, management team & employees
• Products & services
• Financial history and recast financial statements
• Financial projections
• Growth opportunities
• Potential synergies with acquirers
• Customers (e.g., profile, concentration, segmentation, etc.)
• Suppliers (e.g., concentration, exclusives, terms, etc.)
• Lease and facilities
• Equipment
• Operations, overview and systems
• Sales & marketing strategies and systems
• Intangible assets (e.g., intellectual property, franchises/ licenses, etc.)
• Photographs and/or video
• Overview off Hawaii economy and lifestyle

Phase 5: Marketing Plan – Development & Execution
In Phase 5 we create a detailed marketing plan and take the business to market.  The marketing plan may address the following issues, depending on the size, industry, complexity of the business and owner preferences:

• Procedures for maintaining confidentiality
• Profile and clear screening criteria for prospective buyers
• List and/or criteria for buyers that will not be considered (e.g., specific companies, buyers in Hawaii, etc. to protect confidentiality,)
• Assessment of the risks and benefits of approaching strategic buyers
• List of likely strategic buyers worldwide (obtained from a variety of third party and internal databases)
• List of likely private equity buyers worldwide (from third party and internal databases)
• Advertising vehicles to be used (e.g., VR offices, VR web sites, VR email distribution lists, VR list of cooperating brokers, immigration attorneys, direct mail, telemarketing, etc.)

Once the plan is developed and approved, execution begins.  The sales pitch may vary substantially depending on the target. Industry buyers, for example, will likely be focused on potential marketing and operational synergies, customer overlap and cultural fit.  Private equity groups looking for add-on investments will behave largely like industry buyers, while those seeking new platform investments will have significantly different criteria.  Foreign corporate vs. foreign individual investors vary greatly in their acquisition criteria.  A Korean national’s most important objective may be an E2 or EB5 investor visa to establish US residence, while a Japanese corporation may be primarily interested in establishing a foothold in Hawaii and picking up experienced, bilingual talent.

While pitching prospective buyers, we are also qualifying them.  We assess whether they have:

• The financial resources and motivation to purchase the business on acceptable terms,
• The personality and risk taking profile to pull the trigger, and
• The management ability to run the company and satisfy stakeholders successfully. 

Through years of experience, we have identified what to look for as well as the telltale warning signs in each of these areas.

Phase 6: Negotiations, Due Diligence, Closing & Transition
Many business owners and even some business brokers share the mistaken belief that finding an interested buyer is the primary challenge to overcome is selling a business.  Nothing could be further from the truth.  Experience business intermediaries know that fewer than 5% of “interested, qualified buyers” for any business ever get to closing.  Phase 6 is frequently the time when we really earn our paychecks. 

Our job is to help business sellers overcome the countless challenges that arise in this Phase, such as:

• Creating an auction-like atmosphere among multiple buyers to maximize value received, while preserving a sense of fairness in the process for buyers not selected
• Reaching agreement on acceptable price and terms
• Creating the right deal legal and financial “structure” that addresses financial, tax, legal, and transferability issues for both buyer and seller
• Overcoming resistance and developing consensus among selling shareholders, family members, and advisors
• Introducing buyers to CPAs, attorneys and other advisors that are experienced and deal-friendly, not deal-killers
• Overcoming resistance and developing consensus among key buyer stakeholders and advisors (e.g., family, board of directors, CPA, attorneys, etc.)
• Helping buyers find the best funding sources for the anticipated transaction
• Managing buyer demands for information during due diligence that is excessively expensive or time consuming to provide
• Managing demands from buyers to interview customers, employees, suppliers, and others as part of due diligence vs. the need to maintain confidentiality
• Overcoming buyers fears and reaching compromises regarding issues that arise during due diligence (e.g., lack of detailed records, discovery that important agreements are verbal understandings and not written agreements, unanticipated landlord demands for approving lease assignment, recent decline in financial performance, recent loss of customers or employees, etc.)
• Managing volatile emotions of buyers, sellers and their advisors during an extremely stressful and often drawn out process
• Where appropriate, persuade key stakeholders (e.g., landlord, key executives, or suppliers) to approve and stay on with a buyer
• Maintaining relationships with and the interest of back up buyers during due diligence
• Managing the escrow and closing processes
• Preparing the organization for transition
• Managing post acquisition integration of systems, technology and people, and communications to key stakeholders

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