It’s a new year, and it’s house hunting season. Spring is the time of year when home sales and home prices begin their climb out of the winter doldrums and into the summer peak. As we shake off the winter blues, my wife and I are fortunate to be in the middle of the exciting process of purchasing our first home together. Part of the excitement that goes along with buying a new home is selling our current home. The steps we took to prepare our current home for sale are similar to the steps you may take during a corporate transaction, particularly as you prepare to exit an investment or seek to attract additional investors.
To begin the process of putting our home on the market, we met with our real estate agent to discuss the property. Of course, she had a number of improvement suggestions to help us with the sale. As a business person, I naturally questioned the return on investment (ROI) of the recommended improvements. The reality is that some improvements will, in fact, have a direct and compelling ROI (higher sale price, quicker sale). Other improvements will not.
Real estate is relatable for many people, but the same concepts can be applied to a corporate transaction in the world of mergers and acquisitions. Much like meeting with a real estate agent, performing a sell-side diligence is an opportunity to highlight unforeseen issues or areas of development that can be taken into account when building financial models and attracting prospective buyers. According to an article from corporate finance advisory firm Duff & Phelps, sell-side diligence can provide an independent view of your company, which can pay dividends when it comes time to close. The same is true in a real estate transaction as your realtor brings an experienced and independent perspective to the details of your home.
An aging furnace may scare away home buyers, or result in lengthy and uncomfortable negotiations. Similarly, an aging ERP system or leaky financial reporting may scare away investors or lead to unfavorable negotiations over purchase price or investment terms. Recognizing the need for improvements to your business and bringing the corresponding plans to the negotiating table will put you in a more informed position to begin negotiations.