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Thinking of Selling Your Company? 3 Ways To Set a Strong Foundation for Exit
Posted in Contracts, Records

The construction industry is experiencing a surge in mergers and acquisitions. Almost 25% more engineering and construction companies were buying or selling in 2016 over 2015, according to a recent Pricewaterhouse Coopers report. The report predicts that demand will increase in 2017, particularly for small and medium companies. The new administration’s legislative agenda of corporate tax reform and infrastructure spending has likely spurred this nationwide increase in deals. 

Are you looking to position your company for a sale in 2017? Here are three tactics to consider in preparing for a sale, which could save you time and money during deal negotiations.

Incentivize key employees. Creating a sale bonus plan or an equity-based compensation plan will reward and incentivize key employees who you will lean on to assist with the sale. Similarly, a stay bonus program that rewards employees for remaining with the company for a period of time after the sale may provide assurance to the buyer of the prospects of continued success following the closing. Instituting these plans in advance saves time during the transaction negotiation process and encourages employees to remain with the company.  

Consider your exit strategy. Will you stay on with the company for a period of time after the sale closes or will you be taking long walks on the beach at your new island home? The answer is different for each individual owner. Knowing each seller’s expectation for post-closing engagement will assist in setting everyone’s expectations. Factors to evaluate include: what role will each seller play; will this role be full-time or part-time; will there be a guaranteed term of employment, etc.

If a portion of the purchase price is based on the performance of the company following the closing, it may be more important for one or more of the sellers to remain employed until the post-closing measurement period has ended. Keep in mind that sellers who remain employed following the closing should anticipate signing a non-compete agreement with the buyer connected to their post-closing employment. This non-compete will likely be in addition to the non-compete that each seller will be asked to sign in connection with the sale of the business.

Keep your records in order. Potential buyers will conduct due diligence on your company. This diligence will reach beyond financial performance and results. A buyer will look at all aspects of the business, including governance and ownership, employment policies and procedures, and contracting processes.  This process is comprehensive and will demand significant time and resources in response to diligence requests. Review your legal documents prior to engaging in discussions for a sale. 

Spending time now, for example, to clean up stock ownership issues, gaps in your shareholder minutes, or to locate signed copies of key contracts will save time later. This is also an opportunity for you to document any affiliate arrangements that the construction company may have with other entities that you own, such as rental arrangements. Having these documents in good order will limit follow up questions from the buyer and increase the buyer’s confidence in the condition of the company.

Selling your business is an exciting prospect after years of hard work. In our experience, time spent upfront to position your company for an exit will pay off through an increased purchase price, greater certainty for closing and/or a shorter transaction process.

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