In transaction after transaction four tasks stand out as ways to significantly maximise financial returns and minimise risks.
The four task headings will fit on one Post-it Note. They stand out as ways to increase values or sale prices in numerous types of business deals. They are points of distinction for our clients who have done particularly well in business and asset sale transactions.
The four tasks are based on our experience in hundreds of technology commercialisation, business sale, and intellectual property licensing transactions.
In this discussion of the four tasks reference is made to “the other side”. The other side may be a buyer, seller, licensor, licensee, their respective advisers or others whose perceptions of value or price will affect your deal.
Firstly, improve assets. This is the first task. Before going to market, the successful clients built their offering’s quality and level of legal protection and positioning to at least what might be described as a base best practice level. The offering may be an asset, a technology, an item or portfolio of intellectual property, or a business.
- For intellectual property assets (programs, software, inventions, photos, training materials etc) this included identification and documentation of the legal status of copyright, trade mark, confidential information and patent law positions.
- For company structures this included clear documentation of relationships between shareholders, directors, executives, employees, contractors and others. You need these structures to be solid especially when the going gets tough or a big windfall is expected.
COMMENT: Lower levels of protection and positioning can result in the other side’s legal and accounting advisers shooting holes in their client’s confidence. This lowers values and the prices people are prepared to pay.
Advisers are trained to identify issues, just like the Reserve Bank of Australia applying its Counterfeit Detection Guide for currency.
For example, they may pick on your claimed level of legal monopoly. They may warn of the possibility of market changes, disputes or litigation due to undocumented arrangements. All may be terminal for the opportunity or may support demands for price discounts, concessions or repositioning.
Secondly, prepare marketing documentation. The successful clients efficiently communicated to prospects the nature and depth of their offered business opportunity. Speed sells. It works in impulse purchases. It works too in big transactions. To sell efficiently successful clients used an information memorandum, asset profile or portfolio report, business proposal or some other pitching document.
COMMENT: In the absence of such documentation there is delay. Money and time are wasted providing the other side with bits and pieces of information to attract and maintain their interest.
Take the example of an information memorandum. It may be a Word document, a PDF or a PowerPoint. It can be used to present your offering as a clearly defined and valuable asset. You might improve communication by using a mix of information presentation formats (eg text, financial tables, photos, links to videos). This will broaden the appeal to include financial, legal, managerial, artistic and technical people on the other side. Building positive vibes helps increase confidence, prices and perceived value.
Preparation of a document to pitch the opportunity benefits from independent editing and constructive criticism. We work with clients to provide:
- a template or mock up for a client to commence writing,
- advice to professionally structure and present the document,
- appropriate and current industry-specific observations and statistics, and
- “legal design” or legal packaging to wrap the offered monopoly, exclusivity or benefits.
To further explain that last bullet point, legal mechanisms such as – copyright, confidential information, trade mark registration, domain name registration, contract law, branding strategy, and patent law – can be used to strengthen your offering.
For example, a buyer may seek to pay cash in return for security. If the security is perceived to be low level, then the buyer may seek to buy on an instalment payment basis or on terms which shift risk back to your side.
Thirdly, use structured deal making. The successful clients used a structured deal making process. To expand on this we are currently updating our firm’s Deal Making Process Improvement Guide. Contact us for a copy.
COMMENT: An example with one Web hosting client, which sold its business for a seven figure sum, involved attracting more than one bidder before entering serious negotiations with any one bidder (hence benefiting from competition between bidders). In that transaction we acted as lawyers, as well as our client’s agent or broker.
Fourthly, use a legal strategy. Before commencing negotiations, the successful clients planned their legal transaction structuring strategy.
COMMENT: This meant they were in control in negotiations. Here’s some reasons why.
They were a few or several steps ahead of the other side in forecasting and targeting their desired terms and conditions for the transaction contract.
They gained advantage by having their lawyer control the contract and paperwork drafting process for dealings with the other side.
Their legal strategy allowed less room for legal risk. Law is a disciple with innumerable areas of specialisation. Each area (eg business sale law and practice) has a set of transaction types, typical documents and processes. For each there is often one or a few right ways of doing things. (There are innumerable wrong ways!)
If you aren’t familiar with a particular type of transaction or legal territory, contact your lawyer early on. Don’t wait till lots of things are said or a deal is done. Otherwise you may by then have already exposed yourself legally or given away a great deal of your advantage. When you’re in unfamiliar zones contacting a business lawyer only after a deal is done is usually false economics.
In a nutshell, these four key tasks which increase the value or sale price in a transaction involve improving assets, transaction design and transaction execution documents.