successful is for both to have realistic ex- what they are willing to accept.
pectations of the value of the enterprise, Howard Johnson, a past chair of CMA
says Francis, so it’s important that each Ontario and president of Veracap Cor-side does their homework. porate Finance Ltd. in Toronto, says it is
“
It’s really
kind of
“Typically, you’ll find a wide gap be- pivotal that sellers get as many suitors as
tween the buyer and the seller when it possible before heading to the negotiat-
comes to evaluating a business. An eval- ing table with a buyer, as it gives them a
uation done on your business prior to a leg up in bargaining.
sale will go a long way in negotiations.” “In my view, that means you should
Knowing your options and being flex- be able to count the number of serious
ible is also important to ensure negotia- qualified buyers on one hand and not
tions are successful, says Francis, because one finger. Your negotiating position
there are many ways a buyer might pro- rests on the number and quality of the
pose acquiring a business. alternatives that you have. If you have
For example, the purchase price could one good bid and the next bid is lousy
be paid to the seller over time or it could you have a lousy negotiating position.
be dependent on the business achieving If you have a couple of good, attractive
certain milestones. Meanwhile, if a share bids then your negotiating position is
sale is proposed, the seller needs to know strong and you can more easily use one
if there are tax advantages due to capital buyer against another.”
gains exemptions. It also doesn’t hurt for a seller to do
The objective of the seller is to get the some digging and find out everything
best sale price and have it all delivered in there is to know about the potential buy-
cash on the close of the deal, says Fran- er, he explains.
cis, but that sometimes doesn’t happen, “The more information the seller can
so the seller must be aware of all the op- get on the buyer — like what transactions
tions that are open and know in advance he’s done before, what the buyer’s strat-
knowing your
bottom line and
knowing where
you’re going to
compromise and
where you’re
not prepared to
compromise.
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