CHICAGO - Here's the thing about mergers and acquisitions - the companies most in need of a cash infusion, the ones searching for an escape in the midst of an economic downturn, are the ones least likely to attract interest.
It is a simple fact, said Robert Barr, managing director and co-chairman of Lincoln Partners LLC of Chicago. Almost no one wants to invest in a problem. They want businesses that already are successful and are able to compete, he said during the Plastics Industry Mergers & Acquisitions Forum, Dec. 6 and 7 in Chicago.
``What attracts a buyer is a well-run company,'' Barr said. ``It's not just a matter of waking up one morning and deciding you're going to sell your business.''
Any entrepreneur looking to sell an operation must be certain of the firm's strengths and weaknesses, and should prepare for any eventual turnover well in advance. Failing to take the appropriate steps will cost you.
``Sellers tend to make more mistakes than buyers,'' said Stephen A. Opler, a partner with Alston & Bird LLP, an Atlanta law firm specializing in mergers and acquisitions. ``The buyers have been involved with [the process] for a while and they know what they're doing.''
There are some steps that anyone looking to sell their operations should follow, experts said:
* Organize the paperwork involving proprietary systems and patents. Know who owns what and the status of any property rights in case of a sale, said Charles De La Garza, a partner with Fulbright & Jaworski LLP, a law firm with offices in Austin, Texas, and Minneapolis.
* Involve key management in the sales discussions and make sure they are on board with the pending change. Strong leadership is a key ingredient for private investment groups anxious to find growing companies, said Brian Grote, business development manager for Milacron Plastics Technology Group of Cincinnati. ``There's value in equipment, in molding technology and in plants, but the real value is the guy who's going to run the business when everything is done,'' he said.
* Know about any potential problems that could pop up and address them before beginning the sale. Make certain new machines are running smoothly. If there are long-term concerns that cannot be fixed immediately - such as an underground storage tank that could lead to future ground contamination problems - inform potential buyers up front. Do not let them discover it on their own late in the process, said Mark Eggelston, director of Phillip Townsend Associates of London.
``Fix your problems ahead of time,'' he said. ``Bring us something that works. Don't try and sell off your problems.''
* Get the right advisers involved early in the process. A brother-in-law who handles your taxes is not the right person to work on the sale of the company. Likewise, said Opler, do not assume that a ``nonbinding'' letter of intent really is not binding. About 60 percent of the value of a sale is covered in the terms of that document.
* Make certain that customers understand what is going on, and that they are comfortable with the transaction, Eggelston said.
``Customers tend to run off from a deal,'' he said. ``They like to know who their suppliers are. You need to be certain that it's handled right.''
As Collins & Aikman Corp. prepared to buy Textron Automotive Co. Inc.'s trim division, it made certain that automakers were aware of the business plans, said Jonathan Peisner, senior vice president of communications, investor relations and business planning for Troy, Mich.-based C&A.
``The [original equipment manufacturers] are involved in every deal,'' he said. ``It's kind of like going in and kissing the pope's ring.''
Once a company goes through all those steps, it may find it is in better shape than its operators originally expected, Eggelston said.
``When you go through all of the steps, you may see that the business doesn't have to be sold,'' he said. ``Maybe you should be the one that's buying.''