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This outstanding value includes the following must-have's: Download the Package "" for just $0.00.
Download the Package "" for just $0.00. ^ Back to Top ^ Due Diligence List Considering a transaction: joint venture, merger, acquisition, investment in a subsidiary, etc.? Before the complex process of acquiring or selling a business etc. has begun, you'll need this extensive 11-page due diligence list. Armed with this guide, you'll be able to navigate the company's valuation, price negotiated, and, as a smart buyer or seller, you ensure that the due diligence is conducted accurately. This framework will walk you through those key elements that are necessary to critically evaluate the business on the block. [Excerpt from the paper] The complex process of acquiring or selling a business has begun! The company is receiving its valuation, a price is being negotiated, and as a smart buyer or seller you recognize the due diligence must be done accurately. This framework will walk a buyer or seller through those key elements that are necessary to critically evaluate the business on the block. Some of these due diligence elements may not apply to every transaction; select those germane to your specific situation, and they will provide the ‘microscope’ you need to complete this part of the overall deal. 1 Corporate Organizational Documents 1.1 Articles of Incorporation of the Company as presently in effect. 1.2 Bylaws of the Company as presently in effect. 1.3 Minutes of directors' and shareholders' meetings of, or documents evidencing action by directors or shareholders without meeting of, the Company since the date of its organization. 1.4 Stock transfer books of the Company, and a list of all outstanding common stock certificates, preferred stock certificates (all classes), option certificates, debentures and any other outstanding securities, and the record owners of each. 1.5 Certificates of Good Standing for the Company in the relevant jurisdictions in which assets are located or operations are conducted, together with a list of jurisdictions in which the Company has offices or does business and in which the Company is legally qualified to do business as a foreign corporation. 1.6 A list of all subsidiary corporations of the Company, if any, and all corporations, partnerships, joint ventures or other entities in which the Company or any subsidiary has made any equity investment or owns any interests, directly or indirectly, together with a description of the nature of such interest. 1.7 All documentation related to the acquisition of the Company by the current shareholder(s), including, without limitation, any acquisition agreement, any other agreement entered into in connection with or pursuant to such acquisition agreement and all documentation related to the financing of the acquisition or any security therefore. ^ Back to Top ^ Merger & Acquisition Process Selling your business will probably be the largest and most important transaction with which you are ever involved. Owners can spend a lifetime building a company, then lose a large measure of its value by making mistakes through inexperience during a one-time event -- selling the firm. (Remember that there are essentially no second chances when selling your company.) Education on the planning and selling process is essential. You owe it to yourself, your family and others impacted by the future of your enterprise to invest in this three-page paper which will help you successfully plan the exit so that all will exit with optimum value. Overview of the Selling Process Every privately held business will ultimately either be sold, transferred or go out of business at some time in the future. Owners can create substantially more wealth by planning their exit strategy than by letting that ultimate transfer of their business sneak up on them. Unlike the market for publicly held companies (i.e. the stock market), the market for privately held businesses is grossly inefficient. Why? In short, a lack of liquidity. In order to enjoy liquidity, a critical mass of participants engaging in actual transactions is required. In the market for privately held businesses, this is by definition impossible. However, it is possible and increasingly important to get the most out of your business that you can despite the inefficiency inherent in the value determination process for private companies. Selling your business will probably be the largest and most important transaction with which you are ever involved. Owners can spend a lifetime building a company, then lose a large measure of its value by making mistakes through inexperience during a one-time event -- selling the firm. (Remember that there are essentially no second chances when selling your company.) Education on the planning and selling process is essential. You owe it to yourself, your family and others impacted by the future of your enterprise to plan the exit so that all will exit with optimum value. Getting The Business Ready to Sell Selling the company is the final and usually the most important move in an owner’s career. Selling at the right time is critical to maximizing the value of the sale. The first step in the sales process is to prepare your business to attract top-quality buyers. The owner who views his business as a lifestyle “consumption vehicle," is not thinking ahead for the long term. Using business revenues as a source to support personal spending undermines the long-term value and growth of the business. When selling suddenly becomes an option, these owners often find themselves in “behind-the-eight ball” situations. If there is a buyer, who has capital and reasonable sophistication, he is just going to exploit you. In short, savvy buyers look for personal excesses in private enterprises and pursue their identification/eradication in valuation with vigor. As a result, successful sellers typically start readying the company for sale three to five years before they actually sell it. So, when the right time comes, they are ready. The disposition of a business, particularly if family owned or closely held by a small business interest, is a multi-faceted endeavor, presenting far too many issues to explore in one short article. However, here are some basic considerations. The Scrub: Nearly all privately held businesses are operated to minimize the seller's tax liability. Unfortunately, the same operating principles and accounting methodology that minimize tax liability also minimize the overall business valuation. As a result, there is often a conflict between running a business the way an owner wants and preparing it for sale. Although it is possible to reconstruct financial statements to reflect the actual operating performance of the business, this process may also put the owner in a... [continued...] ^ Back to Top ^ The 'Hows' and 'Whys' of Structuring M&A Transactions After countless hours of mulling through financial statements and bargaining for every penny your business is worth, you finally arrive at a consensus price. And although you feel this price reflects an accurate valuation of your company's worth, no price will ever reflect all the unique qualities and features that you have worked so industriously to achieve. Now that a price has been agreed upon, you should expect the seller to present you with a bag full of cash, right…Wrong! Structuring the Transaction After countless hours of mulling through financial statements and bargaining for every penny your business is worth, you finally arrive at a consensus price. And although you feel this price reflects an accurate valuation of your company's worth, no price will ever reflect all the unique qualities and features that you have worked so industriously to achieve. Now that a price has been agreed upon, you should expect the seller to present you with a bag full of cash, right…Wrong! Unfortunately you have just reached the term in the transaction process where you and the seller determine the structure at which the business is going to be purchased. This process involves identifying factors and consequences that both you and the buyer face that will greatly affect the deal's structure. These factors include deeds and licenses, legal liability, and employee morale, and possibly the most influential of these factors - Tax Considerations. The tax consequences faced by both the buyer and seller have an important effect on the overall value of the transaction. The buyer and seller are presented with different tax consequences depending upon the type of structure chosen for the transaction. The size and date of the transaction, the type of corporation being acquired, and the type of consideration paid may all have bearing on the tax consequences. Due to ever changing tax laws, it is imperative that both sides of the transaction seek legal and tax advice, in order to properly select the most effective way to structure the purchase or sale. In order to properly structure the transaction, both groups must weigh the effects of each option and how those effects will influence conditions in both the long and short run. Asset versus Stock Transactions The purchase and sale of a business can be structure in either of two basic formats: (1) the purchase of the stock of the seller's, or (2) the purchase of the assets of the seller's business. From a tax perspective, the vast majority of buyers will prefer an asset sale, and the vast majority of sellers will prefer a stock sale. As a result, the asset vs. stock question most often creates conflict between the buyer and seller. [continued...] ^ Back to Top ^ Business Combination Accounting This is a 21 p age PowerPoint overview of accounting acquisition nuances including: The acquisition of an entire company, Comparing the concept of purchase versus pooling accounting, Purchase accounting procedures at alternative prices, and Pooling of Interests accounting procedures. ^ Back to Top ^ Sarbanes-Oxley Act Included in this three-page white paper are some HIGHLIGHTS OF THE SARBANES-OXLEY ACT OF 2002 which your company may want to take a look at. In response to the burgeoning corporate accounting problems involving listed companies, the United States Congress in late July overwhelmingly approved and President George Bush signed into law, the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act is most notable for imposing increased reporting obligations on issuers and for its substantial federalization of public company accounting practice and standards. The Act also creates or substantially increases criminal penalties for white collar crimes, enhances corporate governance, and imposes federal ethical responsibilities on securities lawyers. Selected provisions of the Act are outlined below. Certain provisions of the Act apply to foreign issuers listed in the United States, irrespective of their jurisdiction of formation – a concept that has caused the European Union to protest the US action. Public Company Accounting Oversight Board The Act creates a five-member Public Company Accounting Oversight Board to oversee audits of public companies. The Board is to have five members, of whom exactly two are to be certified public accountants. The Securities and Exchange Commission, after consultation with the Chairman of the Federal Reserve Board and the Secretary of the Treasury, will appoint its members. Public accounting firms must register with the Board, and the Board will establish and enforce auditing, quality control, and independence standards. The Board itself will be subject to SEC oversight. The Board will be funded by fees on public companies based on their equity market capitalizations, and the Board will also use these fees to fund the Financial Accounting Standards Board, which will continue to establish generally accepted accounting principles. The SEC is to determine, within 270 days after the Act's enactment, that the Board has the capacity to carry out the Act's requirements, and public accounting firms must register with the Board within 180 days after that determination. Auditor Independence A public company may not obtain any non-audit services from its auditor, except with the pre-approval of the audit committee and disclosure in its SEC reports. This requirement will take effect 180 days after the date of commencement of the operations of the Public Company Accounting Oversight Board. In addition, a public accounting firm must rotate the lead audit partner and the audit partner responsible for reviewing the audit of a public company every five years. Additionally, a public accounting firm may not audit an issuer if the issuer's chief executive officer, controller, chief financial officer, chief accounting officer, or equivalent person was employed by the public accounting firm and participated in the audit of the issuer in the past year. [continued...] ^ Back to Top ^ ^ Back to Top ^ Board of Directors Analysis The NASD will implement new Rules in the next year which will require outside board membership in order to remain a public company. Companies obviously cannot choose to ignore the new rules. At worst, a company that does not have the appropriate directors and audit committee composition faces being booted off the exchange. As a result this 3 page paper was drafted to assist companies to develop companies in complying with the new rules. Introduction to Board of Directors Analysis The NASD will implement new Rules in the next year, which will require outside board membership in order to remain a public company. Companies obviously cannot choose to ignore the new rules. At worst, a company that does not have the appropriate directors and audit committee composition faces being booted off the exchange. As a result this paper was drafted to assist companies to develop companies in complying with the new rules. The Basics. As a matter of law a corporation must have a Board of Directors. The directors are elected by the stockholders and have the responsibility as the representatives of the stockholders to oversee corporate operations. In the United States a Director in his capacity as a director does not have the power to sign contracts or commit the corporation legally. The Board elects the officers, who are responsible for the day to day running of the corporation and who have the power to sign contracts under provisions of the bylaws, corporate law and specific Board authorization. There is no limit on the number of directors which a corporation can have. For instance, a Delaware corporation can have as few as one director. A Massachusetts corporation needs only one director if there it has only one stockholder, two directors if only two stockholders and three directors if there are three or more stockholders. Beyond the Law. The more interesting question is “who should be on the Board?" A company with a Board of Directors consisting of management and family or friends is not only a real "red flag" situation but also an obstacle to remaining a publicly traded company. Usually management has its nose so in the day-to-day short term firefighting trenches that it can easily miss the big picture forces which can make or break the venture. Having an impartial outside director, as opposed to the only "outsiders" being friends or family members, makes the situation better because it provides a third party review instead of a perspective that "everything is going well". It also insures that director relationship won’t degenerate into interpersonal issues which are unrelated to the business. A Director’s Job Description. What do you look for in a Director and how do you find them? First, develop a complete job description for each client outside directors’ search. Next identify directors that have relevant industry experience, general business experience, growth company experience, financing expertise, strategic contacts, financial community credibility and many more attributes and help determine which is most critical for the particular business in question. Not every director will have all of the desired attributes and not all of these attributes may be needed at the same time- some are more important in the short term while others might be more critical over the longer run. However, do not invite someone on the Board who will not be making a sustained long term contribution to the company. [continued...] ^ Back to Top ^ Fairness Opinion or Valuation: Does one size fit all During the last decade, there was an overall increase in the number of transactions including mergers, acquisitions, leveraged buyouts, management buyouts, privatizations, corporate restructurings, and tender offers. Did you know that for public companies, the majority of these transactions require the procurement of a Fairness Opinion by an independent financial advisor? Such opinions support the consideration of financial terms of a transaction and provide a legal cornerstone of support. This seven-page white paper dispels a common mistake with regards to what is required by public companies. Often Valuations are commissioned only to find later that the Board is left holding the proverbial liability bag. Don't be caught unaware; this paper could the crash course you and your board need to avoid a head-on litigation collision. During the last decade, there was an overall increase in the number of transactions including mergers, acquisitions, leveraged buyouts, management buyouts, privatizations, corporate restructurings, and tender offers. The majority of these transactions required the procurement of a Fairness Opinion by an independent financial advisor. Such opinions support the consideration of financial terms of a transaction and provide a legal cornerstone of support. Today, the average legal and settlement cost of a director's lawsuit is over $6 million. A growing number of courts are viewing controlling shareholders and directors of all public and closely held corporations as having broader fiduciary responsibilities to all shareholders, and now require objective evidence that directors have made careful, educated, and responsible decisions. A Fairness Opinion may help constitute such objective evidence and could be necessitated by any of the following: Employee Stock Option Plans, M&A, Restructurings, Financings, Privatizations, Shareholder Issues, Litigations, Recaps, and tax issues. Additionally, as of 2002 most corporations were required to conform to a newly crafted FASB statement concerning goodwill accounting. The pooling method of accounting for transactions was eliminated and goodwill must be tested at least annually for impairment. But the question in many director’s mind is which does our company need a valuation or fairness opinion. First, it’s important to understand the difference. Business valuation is a mix of art and science the result of which is a way of estimating a fair price for the business. Several of those methods are described in other white papers in this section. It is common to value a business by a number of different methods and use an average (or more likely a weighted average that gives more weight to some methods than to others) of the various methods used. Note that there are a number of reasons for valuing a business, other than buying or selling it. Businesses are valued for estate and tax purposes, divorce settlements, and for raising capital. Valuations are “neutered” in that they assume a hypothetical buyer and seller and nothing else. A fairness opinion on the other hand is a report of a financial analysis of a business transaction. The focus of the analysis is to determine whether a particular transaction is fair from a financial standpoint to a specified party to the transaction. Thus, unlike a valuation, it is event specific. Fairness analyses are often used to insure the fairness of a transaction to a particular set of parties who are not directly involved in the negotiation of the transaction, such as shareholders or retirement plan beneficiaries. Fairness analyses are often commissioned by company directors and officers so that they may have the benefit of assurance from an independent outside party that a transaction is fair and may demonstrate that they have taken steps to assure others that the transaction is fair. WHY FAIRNESS OPINIONS ARE NEEDED As mentioned, valuations are a way to gauge the worth of a business under hypothetical control like parameters; it’s rather like a financial Petri dish. A fairness opinion however is obtained by a company's board of directors to provide them with assurance that the price or terms of a particular transaction are fair and reasonable to shareholders. Also, a fairness opinion protects the board of directors from potential legal matters which may arise if the transaction is not as successful as originally planned. Determining whether a transaction is equitable is usually the foray of the courts however; the judicial system uses a standard called the “Business Judgment Rule” to measure the efficacy of transaction. The Business Judgment Rule is a rule granting directors of publicly listed companies' immunity from liability if their actions are executed in good faith, using sound business judgment and exercised with reasonable care. Under the business judgment rule, the governing board of a corporation is free to use its own business judgment as to the use of corporate assets, as long as the board acts in what it believes to be the corporation's best interests. Under this standard of care, in the absence of bad faith, fraud, or conflict of interest, the courts will not question the decisions, including the investment decisions, of boards of directors. Essentially, fiduciaries should act: on an informed basis, in good faith manner, in a manner they believe to be in the best interest of shareholders and other appropriate grounds and without fraud, malice or self-dealing. [continued...] ^ Back to Top ^ ^ Back to Top ^ Advisory Team You've devoted countless hours, untold amounts of energy, and a great deal of money to building and running your business, and now you want to sell. You may be thinking, "I built this business, I can certainly sell it myself", but like the adage goes about attorneys, "he who represents himself, has a fool for a client". Learn how to assemble an experienced, dedicated deal team to get your transaction closed quickly and at a good value in this important 3 page white paper. Buyers love it when sellers represent themselves. Why? First of all, few sellers are experienced in divesting of businesses or valuing them. Second, all sellers are emotional when it comes to selling their "baby"; no seller can be objective. Third, in order for an owner to receive the highest price for his business, a good deal of “value” may need to be “extracted”. Most owners are superb when it comes to building and running a business but positioning a company for sale requires a new set of skills. As an example, traditionally, the “value” perceived by the owner/seller is often light years away from the actual value of the company in the transaction marketplace. Sometimes it is lower, often it’s higher. Do your shareholders and heirs a favor and hire an expert team to assist you in the process. In addition, finding a buyer or seller and closing the deal is a time-intensive and complex process. If you as the owner or members of the senior management team want to do the job, the key question on both the buy and sell sides is who will be running the business and keeping it profitable during the months that it takes to complete the transaction. It is very difficult to do both jobs simultaneously. As the owner, you need to keep your eyes on the ball - the primary operations of the business. The company's accountant and lawyer, are invaluable contributors to the process through their specialized skills, but their experience or knowledge of current market conditions fall short of what is needed to consummate a viable transaction. Psychological risks exist to going it alone as well. The seller may be viewed by the potential buyer as lacking seriousness, credibility or in a position of which to be taken advantage. Without a transaction professional, there is not a fallback person to facilitate negotiations. In addition, a general lack of experience may lead to costly mistakes or time-consuming delays. For example, in selling a business, care must be taken to avoid the appearance that the company has been shopped and turned down by a number of buyers. That situation often produces a “damaged goods” image which significantly decreases the value of the business. Business owners not employing a team risk being caught off guard or unprepared to handle the myriad of large and minute problems, issues and details that arise throughout the process or lacks the depth of creativity to manage them. Going it alone also may limit the number of prospective buyers or acquisition candidates if the owner doesn't have enough time to spend on the process. [continued...] ^ Back to Top ^ Want to know more? Download the Package "" for just $0.00. |
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