M&A - How to make your company attractive to buyers?

 

M&A - How to make your company attractive to buyers?

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When carrying out an initial assessment of companies that are for sale or looking for investor partners, many potential buyers of companies give up on the business because they identify points that could negatively interfere with the company's cash flow.

Investors basically pay attention to the potential for generating consistent cash flow. 

Below I will mention some points that may negatively affect the evaluation of your companies:

How to make your company attractive to buyers?

Good Quality of Financial Statements

Financial Statements must be based on good accounting practices. Good Balance Sheets, Income Statements and Cash Flows are essential.

Statements for at least the last three financial years must be available and preferably audited by a first-class audit firm.

A good analysis of the statements and even the explanatory notes is essential. Analyzes must ensure that the company does not have potential "skeletons" that may arise with harmful and even devastating effects on the company's future cash flow.

Keep an eye on financial metrics

Know-how, experience and respect in the market are factors that can positively influence the company's sale, but these items alone are not enough to ensure good sales.

Indicators such as Working Capital, EBITA, EVA, Net Sales, Gross Margin and others, when showing a consistent evolution over the years, are factors that can positively affect negotiations.

Good companies focus on all these indicators, in addition to the usual focus on Sell and Invoice.

Make the buyer's job easier

The analysis of many companies becomes so difficult and complex that potential buyers end up giving up halfway through.

The harder it is for buyers to understand the deal, the more likely buyers are to walk away. Difficulty understanding the business is highly associated with a higher level of risk and a lower chance of the business evolving.

Pay Attention to Working Capital

Ensure that the company is funded with working capital lines and third-party financing and equity at adequate levels. In third-party capital, costs must be at market levels. In equity capital, the destination given to capital needs to be analyzed if it is occurring properly.

Family business practices

Some practices of some family businesses end up harming the business and even masking the real results.

Companies managed by the partner or partners often have their administrators outside the company's payroll. In these cases, it is possible that the sale of the company and the departure of the partners will lead to a reduction in results due to the cost of the managers who will need to be added to the business.

There are cases in which the owner runs the company and without him new owners are unable to continue the operation of the company without the previous managers.

There are many companies where structures are minimal and centralization is excessive. In this case, Profit can be highly influenced by this factor and companies, after being sold, may not be able to maintain the level of profitability they have been showing.

You are going to consider buying a family business, ask the owner if he can take one month of vacation a year without the company suffering.

Companies that do not develop leaders and where there is excessive centralization in the hands of the owners may find it difficult to be sold.

With an eye on the market

Companies that are dependent on one or a few customers may have very negative results in the event of the loss of a customer that holds an important stake in the business. Diversifying, developing new businesses and focusing on innovation could be important factors for the lasting success of the business.

Future vision

Maintaining a Business Plan and Strategic Planning for at least 5 years will show the investor/buyer that the company's management has a good vision of the future.

A vision of the future requires the company and its managers to look at markets, products and technologies for the future period.

Companies with a Strategic Planning vision can be better negotiated.