HOW SELLER’S WEAKNESSES ARE MADE BUYER OPPORTUNITIES

It is important for the Seller to address Company weaknesses up front in the Offering Memorandum (OM) as opposed to later in the sales process. If not disclosed early, Buyer discovered weaknesses will certainly have price implications and challenge the Buyer’s confidence in the Seller’s management ability and honesty.

A simple list of common weaknesses includes: uncollectible receivables, obsolete and slow-moving inventory, non-transferable licenses and contracts, unprotected intellectual property, personal property owned by the Company, expiring leases, pending lawsuits and contract disputes, a concentration of revenues in a few clients, contracts that are losing money and lack of clear title to key assets.

An effective OM will not only disclose weaknesses but will allow the professional to frame the weaknesses as opportunities for the Buyer. The M&A Professional will position the Buyer’s resources as bringing significant results to the Company’s operational and financial performance as a result of the Seller’s weaknesses.

Before the execution of a Letter of Intent (LOI) and while multiple potential Buyers exist, disclosed weaknesses can be more favorably negotiated at a time when the Seller’s leverage in the deal is the greatest.