Selling Your IT Business E-Book

Robert J. Chalfin

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 325

Veröffentlichungsjahr: 2013

Beschreibung

"For close to twenty years I have observed Mr. Chalfin helpingowners, business advisors, and students get a grip on the slipperyissues of selling a business. This book is a valuable distillationof his expertise. " --Ian MacMillan, Dhirubhai Ambani Professor of Innovation andEntrepreneurship The Wharton School, University ofPennsylvania "Bob provided us with valuable outside perspective while weprepared our business for sale and during the sale process. Hisbook is an excellent guideline for business owners thinking aboutselling their company." --Steve Gerlicher, Entrepreneur "Bob Chalfin's experience and intellect make this book essentialreading for IT business owners. Provides thoughtful analysis andpractical advice invaluable to anybody who is even consideringselling their business." --Louis W. Fryman, Esq. Chairman Emeritus Fox Rothschild LLP "Bob Chalfin brings unparalleled experience to developing andexecuting these transactions. His insights are tempered by years offormulating these deals and then describing the methods to hundredsof students at The Wharton School." --Stephen M. Sammut Senior Fellow, Wharton Entrepreneurial ProgramsManaging Director, Burrill International "This book covers all the bases for someone selling an IT (orreally any) business. The observations on buyer motivations areparticularly insightful." --Mark Goodwin Executive Vice President and Chief Operating OfficerPioneer Investments

Leseprobe

Contents

Cover

Half Title page

Title page

Copyright page

Dedication

Acknowledgments

Note to the Reader

Preface

Chapter 1: What Buyers Are Looking For

Strategic Motivations for Potential Buyers

Personal Motivations of Potential Buyers

Business Attributes That Are Attractive to Potential Buyers

Chapter 2: Why Sell?

Reasons for Selling

When Should You Sell Your IT Company?

When Should You Not Sell Your IT Company?

Chapter 3: Types of Buyers

Understanding Your Buyer

Five Kinds of Buyers

Chapter 4: The Selling Memorandum

Creating a Selling Memorandum

Who Prepares the Business Plan?

Contents of a Typical Business Plan

Chapter 5: Attracting and Retaining Key People

Compensation Plan Objectives

Equity-Sharing Plans

Employment Agreements

Chapter 6: Financial Metrics

Financial Ratios

Internal Management Reports

Chapter 7: Your Board

Bringing Outsiders In

Sarbanes-Oxley

Directors’ and Officers’ Insurance

Ground Rules

Chapter 8: Marketing Your Business for Sale

Business Overview

Ways to Market Your Business

Chapter 9: Valuing Your Business: An Introduction

Fair Market Value

Factors to Consider

The Nature of the Business and Its History since Inception

The Economic Outlook in General and the Condition and Outlook of the Industry in Which the Business Operates

Chapter 10: Valuation: Book Value of the Stock and Financial Condition of the Business

Financial Statements

Other Non-financial Data

Balance Sheet

Chapter 11: The Company’s Earnings Capacity: Profit and Loss Statement; Dividend Paying Capacity, The Size of the Block of Stock to be Valued, The Market Price of Similar Stocks

The Earnings Capacity of a Company

The Business’s Dividend-Paying Capacity

Sales of Stock and the Size of the Block of Stock to Be Valued

Market Price of Comparable Stocks

Chapter 12: Methods of Determining a Business’s Value

Comparable Sales

Revenue or Sales Multiple

Earnings Multiple

Cash Flow Multiple

Discounted Cash Flow

Capitalization of Excess Income/Excess Earnings

Replacement Cost Method

Special Valuation Considerations of IT Businesses

Chapter 13: Confidentiality: An Introduction

Competitors as Buyers

Determining Intent

First-time Buyers

Items to Consider

Being Too Cautious

Top Concerns

Chapter 14: Confidentiality: Limiting Data Dissemination and Preparing Confidentiality Agreements

Limiting the Dissemination of Data

The Confidentiality Agreement

Practical Steps

Chapter 15: Letter of Intent

Chapter 16: Due Diligence

A. Organization and Capitalization

B. Business Financing

C. Litigation and Claims

D. Relevant Reports

E. Insurance Coverage and Claims

F. Management and Employee Relations

G. Benefit Plans and ERISA

H. Real Property

I. Personal Property

J. Intangible Assets

K. Customers and Suppliers

L. Tax Review

M. Financial Review

N. Compliance Review

O. Miscellaneous

Chapter 17: Forms of Acquisition, Contract of Sale, Utilization of Attorneys and Certified Public Accountants

Forms of Acquisition

The Contract and Its Components

Utilizing Attorneys and Certified Public Accountants

Chapter 18: After the Sale

Appendix: Online Resources

What Buyers Are Looking For

Why Sell?

The Selling Memorandum

Attracting and Retaining Key People

Financial Metrics

Your Board

Marketing Your Business for Sale

Valuing Your Business: An Introduction

Valuation: Company Value and Financial Condition

Methods of Determining a Business’s Value

Confidentiality: An Introduction

Confidentiality: Limiting Data Dissemination and Preparing Confidentiality Agreements

Letter of Intent

Due Diligence

The Contract of Sale

After the Sale

Other Sites of Interest

Index

Selling Your IT Business

Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax [phone], or on the web at www.copyright.com. Requests to the publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax [phone], or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data

Chalfin, Robert J.   Selling your IT business : valuation, finding the right buyer, and negotiating the deal /      Robert J. Chalfin.         p. cm.   Includes index.   ISBN-13: 978-0-471-74076-6 (cloth/cd-rom)   ISBN-10: 0-471-74076-4 (cloth/cd-rom)   1. Computer software industry.  2. Computer service industry.  3. Information technology—Economic aspects. 4. Sale of business enterprises. 5. Business enterprises—Valuation. 6. Business enterprises—Purchasing. I. Title.   HD9696.63.A2C525 2006   338.4′70053′0688—dc22

2005019912

To my wife, Debbie,my partner in life and my heart’s feast

To our children, Risa and Benjamin,who embody our wish list and keep us laughing

To my parents, Shirley and Joe,who gave me the gift of unconditional love which allowed me to pursue my dreams.

Acknowledgments

Any book is the result of the efforts of many individuals:

Laura Brown, Elise Marton, David Moran, and Alan Rooks edited the manuscript and their suggestions and comments are sincerely appreciated and improved the book immeasurably.

Paul Gazaleh C.P.A./A.B.V., my fellow shareholder at The Chalfin Group Inc., offered ongoing encouragement, advice, and levity during the entire project. Roberta Sternthal, my executive assistant, in addition to cheerfully typing, retyping, and yet again retyping the manuscript, offered ongoing contributions throughout the writing process.

John Daus C.P.A., Herbert Lipman C.P.A., William Nagle C.P.A., Alan Rubin, Esq., David Rubin, Esq., and Michael Schaff, Esq., gave freely of their time and considerable expertise, greatly enhancing the value of the content. Bradley S. Rodos, Esq. provided guidance on the Sarbanes-Oxley Act of 2002. Robert Borghese Esq., Lecturer in Legal Studies and Entrepreneurial Management at The Wharton School, furnished many valuable recommendations that were incorporated into the manuscript, to the great benefit of the book.

A special note of thanks to Samantha Schackman, a business analyst at The Chalfin Group Inc., and Risa Chalfin, my daughter, for assisting with the research for this book.

Several professionals at John Wiley and Sons, including Natasha Andrews, Tim Burgard, Helen Cho, and Debra Manette were extremely helpful shepherding the book through its final stages. I continue to be in awe of their talent, skill, and patience.

I would also like to acknowledge the efforts of Andre Vagliano, for graciously providing insightful commentary and suggestions and for doing so with an ever-present touch of humor.

I am indebted to all of the people who assisted me with this project.

Note to the Reader

The sample forms and agreements that are included with this book are for reference purposes only. They are intended for use as samples, not for use by parties actually contemplating a transaction. While the provisions contained in the sample forms and agreements illustrate many of the points made in the related materials, any document used by parties to a transaction or a proposed transaction should be drafted with the parties’ particular positions in mind by advisors that can include lawyers, certified public accountants, and financial advisors. A general document not specifically adapted to a particular fact pattern will not provide the parties with adequate rights or protections.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this publication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Preface

This book is targeted to entrepreneurs and businesspeople who are considering selling their businesses. But it will also help those who serve as advisors in the acquisition process: attorneys, CPAs, intermediaries, marketers, and financial advisors. The book will also assist those who are acquiring or considering the acquisition of information technology (IT) businesses.

One paradigm has shifted: IT business owners will not want to wait until a traditional retirement age to sell. Today it is common for entrepreneurs to sell after a few years or more of operations, when the business reaches an inflection point of one sort or another and the founders want to move on to another opportunity.

Business owners who have the determination, skill, and ability to develop a business but are unfamiliar with the complexities and subtleties involved in selling it will benefit from reading this book. Selling Your IT Business aims to equip owners with the knowledge necessary to prepare to sell. Even if owners do not sell, the book will provide valuable advice on how to improve overall operations.

Selling Your IT Business provides an overview of the business sale process—everything from preparing for the sale, estimating a business’s value, finding the right buyer, negotiating the sale, and closing the deal as well as the individual steps in the process, including preparation of the selling memorandum, maintaining confidentiality, the letter of intent, due diligence process, the contract, utilizing attorneys and CPAs, and what to do after the sale. The information is presented in a step-by-step format, carefully walking the reader through the preparation and the transaction. The book also provides samples of some of the forms that will be encountered in the sales transaction.

Selling Your IT Business helps to ensure that business owners are fully informed before and during the sale process and that they emerge from the transaction as protected as possible. The book will help the seller (and the buyer) avoid pitfalls—losing momentum, undervaluing the business, channeling scarce resources ineffectively, wasting time with an insincere buyer, inadvertently giving information to a competitor, and alienating employees, to name a few. Although the book cannot take the place of legal, accounting, and financial advisors, it provides a framework for readers to gain a complete picture of the entire sale process so that they can utilize these professionals more effectively and efficiently.

I hope you find the information in this book to be a valuable resource to guide you through a successful deal.

Robert ChalfinNovember 2005

CHAPTER 1

What Buyers Are Looking For

Buyers purchase information technology (IT) businesses for many reasons. Naturally, the central rationale behind every purchase is the buyer’s belief that the business will generate value in the future greater than the purchase price.

STRATEGIC MOTIVATIONS FOR POTENTIAL BUYERS

The best way to understand what your business looks like to a potential purchaser is to put yourself in his or her shoes, and in Chapter 3 we look in some detail at the different types of buyers and what motivates each of them. For now, let’s take a general look at why someone might want to buy your IT business.

It may satisfy a strategic need. For example, acquiring your business may enable the buyer to operate with greater economies of scale. A buyer may also believe that your business would have good synergy with his or hers. For example, the acquirer may want to expand offerings to existing customers, and your business may provide a solution—a product, a service, or both. Solutions can take a variety of forms. Your offerings may enable the purchaser to conduct business more efficiently and/or attract more customers; your sales force, products, or services may attract more customers for the new entity. Or the acquirer may feel that the market is heading in a particular direction and your business will help achieve desired goals.