|
You work
hard and build a business that you can be proud of.
Cash flow is good, revenues are increasing, your
management team has costs under control. You have
stepped on some big toes, and your larger competitors
are beginning to tempt you with some serious offers.
They involve taking stock in their company in exchange
for control of yours. Here are some things to
think about.
First of
all, just how well is the company offering you stock
performing? Does the acquisition of your company
help meet strategic objectives, or is it just a public
relations ploy? Remember that your company is more
than just facts and figures. There are employees
to think about as well.
How strong
is the buyer performing in the capital markets?
What has their stock performance been like - and what
does the forecast look like? You certainly don't
want the value of your transaction to crumble with a
declining stock value.
During the
transaction period, how is capital market risk handled?
Normally there is a period of time between when you
agree to a deal and when it closes. Is there a
clause in the agreement that addresses a change in the
underlying value of the securities?
There are a
couple of ways to approach this risk. There can be
a specific value associated with the deal, in which you
receive a number of shares at closing commensurate with
the total value agreed upon. In this case the
number of shares will fluctuate depending on share
value.
If you opt
for a fixed share value, you will see the dollar value
rise and fall with the share price of the buyer.
In effect, you are investing in the buyer for a period
of time and taking on the risk associated with that.
A blend of
the two would be a fixed share deal with a floor and a
ceiling. In this case, the seller would assume a
certain degree of risk (and enjoy a certain degree of
appreciation) in exchange for the buyer's agreement to
issue more shares should the price of the stock decline
below the floor level. The number of shares would
of course diminish if the price level pushes the value
of the deal over the ceiling.
Perhaps the
most important factor to address is liquidity. A
buyer is not going to want the seller to dump their
shares on the market immediately, and in many cases the
stock they provide is not registered and therefore
subject to Rule 144 restrictions.
On the other
hand, you are trading control of your company (and its
value) to someone else - and putting a lot of your asset
value into their hands. You will be looking to
mitigate risk and diversify your portfolio.
The above
considerations are only the tip of the iceberg when it
comes to selling your company for public stock.
Sellers who are considering this step would be wise to
consult with outside advisors before taking a step of
this magnitude. |
