SELLING THE INTANGIBLE COMPANY – How to Negotiate and Capture the Value of a Growth Firm
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| Selling the Intangible Company |
Author: Thomas Metz
ISBN-13: 9780470261378
ISBN-13: 9780470261378
Topic: Business & Economics
Format: Hardcover
Language: English
Publication Year: 2008
Language: English
Publication Year: 2008
REVIEW:
In Selling the Intangible Company, Thomas Metz helps entrepreneurs and venture capitalists to better understand the process of selling a company whose value is strategic. He addresses all the key issues surrounding the sale of a company in which the value is in its technology, its software, and its know-how–but has not yet shown up on its balance sheet. Filled with in-depth insights and expert advice, this book provides essential information for business professionals and technology CEOs who need to understand the nuances of selling a company with intangible value.
Companies with strategic value—as opposed to financial value—exist in a variety of industries, but they're predominantly found in today's ever-growing technology, software, and service industries. Almost every one of these businesses will transfer ownership at some point in time, the vast majority through an outright sale of the company. But those responsible for handling transactions involving companies with intangible value are often faced with a number of hard questions: How will the buyer perceive value? In which sectors can the best buyers be found? Can the right investment banker add value to the transaction?
Metz reveals the important subtleties surrounding the sale of companies whose value is strategic, such as how selling a company with strategic value is different than selling a company with financial value, and why small transactions have different dynamics than large transactions. He identifies the best time to consider selling and debunks many of the common myths surrounding the sale process. Drawing from his twenty-five years of experience in this area, Metz offers invaluable advice on negotiating the price of an intangible company, identifies common negotiating mistakes, and examines the pros and cons of the sale of stock versus a sale of assets.
He also looks at transaction currency alternatives and how creative structuring can overcome unusual deal problems. In addition, he tells how to select an investment banker, attorney, and accountant—and explains why a CEO should not sell the company himself.
Deals such as these can be a complex, sometimes perplexing process. Selling the Intangible Company provides the essential information necessary for business professionals and technology CEOs who need to understand the nuances of selling a company with intangible value.
SPONSOR: Business Books
SPONSOR: Business Books
About the Author
Thomas Metz has been a boutique investment banker for more than twenty-five years. He founded T.V. Metz & Co., LLC, in 1983 and has a diverse corporate finance background. Metz's primary specialization is selling technology, software, and service companies. Previously, he invested venture capital for an investment firm and managed new business projects for Gramark Co., a private holding company. Metz has degrees in mathematics and computer science from the University of Oregon and an MBA from the University of California at Berkeley.
Lesson Learned
I have read several books about how to prepare a company for sale and complete the sales process. Most of those books are geared towards people who are selling a traditional business, or focuses on selling larger more mature businesses. In those examples, determining a valuation and finding buyers is a relatively straightforward process.
Selling the Intangible Company is different. The author has M&A experience in selling companies with "intangible" value. These businesses typically don't have a long history of predictable cash flows that can be used to value them by applying a multiple of earnings. Rather, their value is in their technology, products and people. For this type of firm, value depends largely on locating a buyer who has a strategic interest in acquiring what the seller has created. Because the perceptions of value can vary so widely from one potential buyer to the next, it's especially important to execute a disciplined sales process and understand things from the buyer's perspective.
This book is an excellent resource for founders and managers of small technology companies. The writing style is clear and authoritative, but funny and entertaining at the same time. Perhaps the strongest part of the book is the large collection of "War Stories" that the author has included. In these brief segments, Metz talks about how an actual client of his dealt with a particular opportunity or challenge. Sometimes their stories turned out well, and other times they crashed and burned. But every one of the war stories makes for a great read, and helps provide real-world examples of the many nuances that surround these types of M&A transactions.
Compared to other books on how to sell a business, "Selling the Intangible Company" is relatively expensive. However, if you fit the audience profile above, it's worth every penny.
TABLE OF CONTENTS:
Preface.
Acknowledgments.
CHAPTER 1: Intangible Companies—Who are These Guys?
What is an Intangible Company?
Why are Companies Acquired?
Why are Companies Sold?
When are Companies Sold?
The Nuances of Selling an Intangible Company.
Summary.
CHAPTER 2: Debunking the Myths of Selling the Intangible.
The Myth of Intrinsic Value.
The Myth of a Narrow Value Range.
The Myth of Revenue Multiples.
The Myth of Liquidity.
The Rolodex Myth.
The Myth of Big Buyers.
The Myth that Small M&A is like Big M&A.
The Myth that the CEO Should Sell the Company.
Summary.
CHAPTER 3: The Sale Process.
Make Sure the Seller Understands the Process.
The Negotiated Sale.
The Typical Time Frame for a Deal.
Another Approach: The Two-Step Auction.
The Restart.
How to Handle Confidentiality.
Summary.
CHAPTER 4: Preparing a Company for Sale.
Improve Profitability and Operations.
Get Your House in Order.
Reduce Risks.
Selling Just Technology.
Summary.
CHAPTER 5: Who are the Best Buyers?
Reasons Buyers Buy.
Categories of Buyers.
Identifying the Right Buyers.
Viewing a Market Space.
Contacting Buyers.
Markets are Always Moving.
The Perils of Polarized Markets.
Summary.
CHAPTER 6: Public or Private—Pros and Cons.
What to Consider When Selling to a Public Company.
What to Consider When Selling to a Private Company.
Summary.
CHAPTER 7: The Concept of Value.
Value is Not Necessary.
Reviewing the Myths.
What is a Market?
Types of Value.
The Time Premium.
Traditional Valuation Methods.
Rules of Thumb for Determining Value.
How a Buyer Determines Price.
Optimum Price vs. Market Stage.
Summary.
CHAPTER 8: The Poker Game of Negotiations.
The Negotiating Process.
Good Negotiating Strategies.
Know Your Opponent.
Utilize Game Theory.
The Opening Gambit—Setting a Price.
Communication Dynamics.
Negotiations Do Not Have to Be Logical.
Negotiating Rules and Tactics.
Common Negotiating Mistakes.
Managing and Generating Alternatives.
Summary: Is Negotiating an Art?
CHAPTER 9: The Challenges and Opportunities of Selling.
Roadblocks, Obstacles, and Deal Killers.
Shareholder and Management Issues.
Problems on the Buyer’s Side.
Why Companies Do Not Sell.
Responding to an Unsolicited Offer.
Summary.
CHAPTER 10: The Problem with CEOs.
Founder Leaves $50 Million on the Table.
Common Issues.
18 Reasons Why a CEO Should Not Sell His or Her Own Company.
A Tale of Tech Hubris.
Summary.
CHAPTER 11: Structuring the Transaction.
Selling Assets.
Selling Stock.
Forms of Payment.
Creative Structuring.
Consulting Contracts and Noncompete Agreements.
A Few Other Issues.
Buyer Accounting for the Acquisition.
Summary.
CHAPTER 12: Documenting the Deal.
Crafting the Letter of Intent.
Navigating the Due Diligence Process.
The Purchase Agreement.
The Preclosing Period.
Summary.
CHAPTER 13: Earnouts.
When Earnouts are Appropriate.
When Earnouts are Not Appropriate.
Structuring Tips.
Summary.
CHAPTER 14: Using Investment Bankers and Third Parties.
Making the Decision to Work with an Intermediary.
Choosing the Right Size Investment Banker for Your Transaction.
A Word about Fees.
Problem Bankers.
Working Effectively with an Investment Banker.
Critical Deal Skills for Investment Bankers.
Finding the Right Attorney and Accountant.
Summary.
Afterword.
APPENDIX A: The Beauty of Small Acquisitions.
Looking Outside for Growth.
A Window into Niche Markets.
Criteria Can Be Limiting.
The Trouble with Small Acquisitions.
How Small Deals are Different.
APPENDIX B: Notes on International Deals.
Foreign Buyers.
Language.
Culture.
Negotiating Styles.
Time Zones.
Dollar versus Euro.
APPENDIX C: How to Select an Investment Banker.
The Three Cs.
16 Good Questions.
About the Author.
Index.
The untouchable
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