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Maximizing the sale of your company — Avoid these top five seller mistakes

by Fred Hageman

For SaleWhen selling a business, knowing everything about it is imperative to maximize net sales proceeds. Knowing the company’s strengths and weaknesses, employees, customer composition, rental fleet, facilities, competition, growth opportunities and potential, along with the company’s financial results, are all part and parcel of being able to maximize your lifelong investment. Today, a rental business is scrutinized more than ever when being evaluated by an acquirer and the following are five key seller mistakes you should avoid.

Not running the business in the “normal course” when looking to sell. Many sellers do not purchase equipment in the normal course of business when they are gearing up to sell. “Why should I buy more new equipment if I’m selling?” they might say. The short answer is that it will be more expensive at the end of the day if you don’t. There are ways to structure deals so that sellers aren’t penalized for running their business as if they would own it forever. Don’t pull back on sales or marketing efforts, either. Trying to just maintain the status quo will mean slippage. Sophisticated buyers appreciate sellers who are continuing to run and focus on their business and would rather acquire a business that isn’t cutting corners vs. one that is obviously pulling back prior to selling.

Not having solid, up-to-date information. This not only includes having current financial statements readily available on a monthly basis, but more importantly, having a good handle on your inventory/assets. Competent sellers have current asset lists in excel format — easily exported from your rental software — that has the pertinent information that savvy acquirers look for. These lists should not have “zeros” or negative numbers, proper quantities with extended,8 actual original equipment cost (OEC) and no missing line items. The cleaner this document is, the better off you’ll be. A recent, physical inventory is highly recommended before you go to sell. Know what is “rental ready” and what isn’t, and what is “hard down” and why noted.

Going it alone without proper, experienced representation. Many independents decide to “go it alone” in deals, thinking or being told that a broker’s fee isn’t or won’t be worth it because having an attorney is sufficient. However, almost all savvy, sophisticated rental business owners have representation when they sell. With the right intermediary, sellers are aware of and understand that there are hundreds of steps and countless pitfalls in making the deal. Represented sellers understand that they don’t have the network, time or ability to cast a wide net that will sufficiently attract multiple qualified potential buyers. It is imperative to know all the active private equity firms in the space and those that have been looking at investing in the industry for months and years. If a large company can come in and give you their free valuation of your business and do a deal without any other suitors, that’s great — for them. There are many unsuspecting, albeit smart and savvy, sellers out there who will leave money on the table by making this mistake. Having solid representation is cheap insurance because missing just one or two key pieces in a deal can cost far more than any fees paid. You and your team need to be focused on running your company and making sure you don’t lose that focus. An intermediary will be focused on driving the sales process while maximizing the price and minimizing tax obligations.

Negotiating and dealing solely with a major company that has approached you. You have been approached. The buyer is qualified. Some buyers may tell their targets the same old thing over and over: “Only deal with us; you don’t need to shop your business or use a broker. We will value your business fairly, give you top dollar and come to an agreement.” Not much has changed from this routine approach in the last 25 years. However, proper representation will cast a wide net to try to create a situation with multiple competing buyers to maintain leverage. If you have been approached, you likely could have other potential buyers who would like to throw their hat in the ring. Your intermediary should prepare and present a professional, detailed offering to all qualified parties, including the one that approached you first. Show a buyer that you have other options. Dealing exclusively with one buyer is selling yourself short and could cost you much more than you know.

Knowing how to pick and choose your battles. Your company’s value is not solely about earnings before interest, tax, depreciation and amortization (EBITDA). That’s only one component of true value. Other factors such as revenues, original equipment cost of fleet, fleet age, capital expenditures, facilities, upside potential, employees, competition and more all come into play. Also, it is important to understand that there are multiple aspects to getting to your number and it is a net number you’re truly looking for. From rent, consulting and employment agreements to carve-outs, earn-outs, baskets, deductibles, working capital treatment, debt issues and more, there are many ways to collectively realize your expectations. Some deals can go awry at the last second over what amounts to rounding errors, where the seller just wanted to eke out one more aspect of a deal and the buyer walks. Different buyers also have their own nuances during the process, including during due diligence all the way up until closing. Knowing how to pick and choose your battles in a deal is crucial to success.

Fred Hageman is the principal of Rental Business Advisors, which specializes strictly in the equipment and event rental industry offering mergers and acquisitions, and valuation services. More information about Rental Business Advisors can be found online at rentalbusinessadvisors.com. Hageman can be reached at fred@rentalbusinessadvisors.com or 530-545-8855.