What Speeds Up or Slows Down a Sales Process?

by Trey Brasseaux, Cetane Associates

Seller information can make a merger or acquisition move more smoothly

When it comes to Mergers and Acquisitions, the transaction process timeline can vary widely based on numerous factors. While transactions typically last six months from start to transaction close, there is no “standard” timeline to close a deal. While the buyer’s unique due diligence process often drives the time period to close, there are some actions within a seller’s control that can materially impact the length of a sales process.

Amount, Knowledge, and Quality of Information

While working on multiple sales transactions, there are many examples of companies with good information vs. bad information. The simple truth is that companies with good information attract more offers and close sooner while those with bad information tend to create longer, more difficult processes overall. Therefore:

1. Sellers should be prepared to provide accurate and robust information from the outset, which will better prepare the principals to respond to buyer inquiries. Quality of information can mean accurate financials, customer and business-unit level detail, accurate expenditure records, current safety protocols, and insurance coverage including claims and detailed HR files.
2. Alternatively, if there is minimal or obfuscating financial information, all involved parties will spend more time attempting to answer necessary questions.

As the transaction moves into its later stages, sellers can avoid surprises or easily work through detailed financial questions if they have a deep understanding of their business from a commercial standpoint—understanding what drives performance at the margin, customer, service area, and product level:

1. Sellers may be best served by bringing a key employee who has this knowledge “under the tent” of the sale transaction to facilitate information.
2. In a time when renewable energy and green legislation are prevalent, we often see transaction timelines improved when a seller has a comprehension of its service department – appliance installs, billing rates, plan coverage, number of service plans and related obligations under the plans, and the overall efficiency and profitability.
3. On the cost side, sellers should understand supply agreements, purchasing activities, the efficiency of its employees compared to pay rates, and what one-time or abnormal expenses the company may have incurred.
4. A seller who understands what drives performance and can demonstrate its profitability will avoid lengthy discussions around financial performance and related purchase price. This data will also add credibility to the seller’s business.
5. Alternatively, if a seller does not “have its finger on the pulse” of its financial performance, a buyer is likely to become skeptical and will spend additional time trying to understand the financial performance. Or even worse—reduce or retract its offer.

Real Estate

Real estate is one of the most common components that can complicate a sales transaction.

1. Firstly, a seller should know whether they plan to sell or lease their real estate.
2. Next, a seller should consider obtaining property surveys, appraisals, and Phase I environmental studies.
   • a. Property surveys establish the boundaries of your property to remove any doubt about what is being sold.
   • b. Having a recent property appraisal will establish a defendable value of the property and/or the rent a seller expects to collect. While a buyer may still want to perform its own appraisal, a seller’s appraisal can limit any haggling over value and purchase price allocation. Beyond saving time, achieving a higher allocation to the property will improve the post-tax sale proceeds.
   • c. Phase I environmental studies, like appraisals, may not be accepted by a buyer. However, it could answer any questions about the environmental risk on a property or allow a buyer to move more quickly to a Phase II study.
3. Another issue that commonly slows down a transaction timeline is the treatment of material contracts related to real estate. Leases should be written and current when a company goes to sell. The buyer will want to see documentation confirming the property/equipment being leased, the lease term, and the lease amount. Absent a written lease or a lease that is not transferrable, the buyer will likely require a new lease to be written between the buyer and the property owner. It is best to formalize all leases under a written lease early on, so the buyer does not have to negotiate a new lease during the diligence period. Additional property-related contracts may include agreements with wholesale customers, tenant leases on the seller’s property, company agreements to lease equipment at third-party facilities, and agreements with third parties for equipment at the seller’s facility such as solar farms or cell towers. The terms, transferability, and treatment of these agreements will be key in determining how long it takes to resolve the treatment of real estate in a transaction.

Advisory Team

Having an advisory team established in the preliminary stages of considering a sale can facilitate a quicker transaction process. This allows the advisors to become familiar with the business and assets, the owner’s goals, and the potential legal and tax implications to the seller as it relates to a transaction.

Hiring a specialized transaction attorney can facilitate a more thorough and speedy process than choosing in-house counsel or a previously used generalist attorney. A specialized transaction attorney will be knowledgeable on related issues that a generalist attorney may not, such as reps and warranties, indemnities, real estate treatment, and environmental concerns. Additionally, hiring an attorney that can work in a timely manner is crucial.

A seller should also engage their tax advisor before a transaction process. This way the seller can set valuation expectations and negotiate the purchase price allocation from an informed tax position.

Alternatively, not having the right advisors in place during the initial stages can drag out a sales timeline as sellers need time to evaluate options and an advisor needs time to familiarize themselves with the deal.

Trey Brasseaux is an Associate at Cetane Associates, specializing in M&A advisory to the retail propane/delivered fuels industry. He can be reached at 832-729-7319 or tbrasseaux@cetane.com.

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