A re-post originally from June 29, 2010.
There are various approaches to selling a business and selling a
publishing business is no different. The circumstances surrounding the
decision to sell can greatly influence how smoothly the process goes;
however, as with many things, the amount of preparation that goes into
the process will ultimately determine whether there is a successful
outcome.
As a seller, your immediate task is to eliminate questions, cynicism and
doubt about your business in the minds of potential buyers. No matter
how excited the potential purchaser seems to be about your company, they
are going to be skeptical about key information. Their job is to
(cynically) use anything negative to undercut a purchase price;
your
job is to be open and effectively back up any questions they will have
with facts. (Bear in mind that adequately addressing these issues to
their seeming satisfaction early in the process doesn't mean the
purchaser won't raise them again during negotiations, so keep your story
straight and simple).
If, as an owner, you always believed you would sell the business, then
you should have a reasonable understanding when you would like this to
happen. As a prelude to this event, you will want to focus on a number
of key areas.
First, your financial statements: If Aunt Sally has been doing your
taxes for the life of the company and you have never had periodic
management accounts, then you are not in a position to achieve full
value for your company. Treat Aunt Sally with respect but get yourself
an accountant and a bookkeeper to put the numbers in order. At least a
full year's audited financials and management accounts should be
considered the basic financial reporting requirement when done by a
qualified financial accountant. (They do not need to be full-time
staff).
Second, if Aunt Sally is just one of several family members taking a
salary in the company, you may want to think about their continued
involvement in the run up to the sale. A buyer will want to know the
actual operating cost of the business and you, as a seller, want to
provide the best possible view of the business (that is, without extra
expenses). Now, if the family member(s) has a legitimate and key role,
then you may have other issues to address (such as their position with
the company post-sale).
Third, many buyers will focus on future revenue growth. Do you have
formal contracts or handshake deals? Is revenue dependent on one source?
The buyer is going to second-guess your revenue projections; therefore,
if there are any 'soft spots' it will undercut their confidence in the
business overall. Saying so and so has always bought from us is not as
valuable as being able to say 'we have a negotiated five-year deal' and
we are currently in year two. If your revenue growth is rock solid -
even if it is based on a small number of authors, commercial accounts or
subscribers but supported in each case contractually - that will place
you in a stronger position.
Fourth, your accountant will also create a balance sheet for the company
and the key items concerning a buyer are those things that deal most
immediately with cash. As a seller, you need details about your
inventory turn, accounts receivable collections and accounts payable.
Assuming you have prepared for the sale of the business more than twelve
months in advance, you should have a clear picture of these items.
Just because an item is listed as a company asset doesn’t mean a
potential buyer is going to agree as to its value.
Other balance sheet items that require attention are fixed assets, which
may include the building in which the company is located. Sometimes a
seller wants to keep the building (if they own it) in which case you and
your accountant will need to determine the best way to handle this.
Bear in mind that the property could be the most valuable asset owned by
the company. Similarly, the company may own patents and intellectual
property that must be properly accounted for and (for the benefit of the
acquirer) properly documented.
In summary, get your accounts audited, create a 'clean' income
statement, deal proactively to get your revenue sources locked down and
establish formal procedures to manage your cash flow and balance sheet
items.
Obviously, the value of a business is stated in black and white in its
financial statements but to the potential buyer they will be just as
interested in the products you're selling and their future value as they
are in your accounting policies. You must have clear ownership rights
to any content or technology that represents a primary asset(s) of the
company. If contracts aren't transferable, if certain rights are
retained by content producers or if you 'collected' data to create your
products without proper authority, these issues and others like them
should be addressed and resolved before you market your company. If
there is any doubt in the mind of a buyer that they will be able to
carry the business forward, this will either scuttle a deal or
significantly reduce your purchase price. And don't think they won't
find out.
Sixth, your organization's human capital is important to the business
for continuity reasons (if not for other reasons). Don't believe that
you can keep the selling process a secret because even if your employees
don't know everything, they will make up the rest. As a seller, you
must maintain momentum and, for that, you need to maintain decent
employee morale.
Bonuses and incentives can play a role, as can simple communication.
Unfortunately, you can't control what the purchaser chooses to do with
the business and placing restrictions on post-sale activities - even if
you can get away with this - will only reduce your take. Key employees
are important to the purchaser and they will want to know who these
people are. The purchaser may want some guarantee that these key
employees will remain with the business for some stated period after the
sale and will be willing to pay the employees a bonus to stay.
As an owner, you may have provided equity to employees over the years,
which would give them a piece of any sale. Often these deals can be
'casual' which is not what a buyer wants to hear. The last place a buyer
wants to find him or herself is in the middle of an ownership dispute,
so, no matter how painful this process may be, get those agreements
formalized in advance of a sale.
Finally, as a seller you will want to practice speaking about your
company so you are effective in communicating to potential buyers why
acquiring your company represents good strategy. Your understanding of
your market, your competitors' market positioning and market trends and
opportunities all represent key components of your company's selling
attributes - and reasons why a purchaser will see opportunity in
acquiring your company. Work to prepare a briefing document of your
company which you can use in presentations and discussions.
Importantly, at industry events, seek out speaking and panel discussion
opportunities where you can both present your company and your
understanding of the market, as well as learn about what other similar
companies are doing in your marketplace. Not everyone is comfortable
with this type of communication; however, during a sales process the
buyer is going to rely a lot on your perspective about the business, and
the more comfortable you are, the better your views will come across.
The only way to become a better and more effective communicator is
through practice.
In summary, any hiccup in the process of acquiring your company could
result in a buyer or buyers either getting cold feet or simply moving on
to something else. There are lots of companies drawing acquisition
attention and, having gained attention, you don't want to lose it and
fall to the bottom of the pile. By the time you regain their interest,
circumstances could have changed significantly and no longer exist to
your advantage or worse - the opportunity maybe permanently lost to you.
Michael Cairns served on the board of the Association of
American Publishers and has served as President and CEO of several library
services and education and information publishing companies. He is currently a consultant
and board advisor to global publishing companies.
On May 17, Clarivate announce a proposed deal to acquire Ann Arbor based Proquest. (See here). In the last few days, Clarivate has reported more details including 2020 full year financials for Proquest. 
