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SAN FRANCISCO — Game company acquisitions are at an all-time high, but plenty of pitfalls can derail your deal.
Jim Perkins, the director of the merger consulting firm Corum Group, said in a talk at the Casual Connect game conference that selling a company is very complicated and it’s very important for sellers to structure their deals in a favorable way. He offered advice on structuring deals, disasters to avoid, and the most common deal-killers.
When selling a company, an owner should think about details beyond getting the highest price. Among the important issues: what happens to your employees, how an integration with a larger company will happen, minimizing taxes, securing proper rights and employment agreements, and communicating properly with potential buyers.
For instance, you should synchronize and track all communication with buyers so that nothing falls through the cracks on deals.
“I wouldn’t sell my house on my own, and this is a far larger transaction,” said Skillz founder Andrew Paradise, who spoke on a panel about selling a company. “So I wouldn’t try to sell a business on my own.”
Perkins said when the owner manages the transaction, 80 percent of deals fail.
The disasters that can happen include a failure to keep up with the workload of documents required for a merger. Those documents include nondisclosure agreements, tax audits, and valuation reports. Some you can do yourself, but many require the presence of outside experts such as accountants or lawyers.
The top value destroyers:
- Failure to preserve confidentiality.
- Theft of technology. It still happens, Perkins said. To prevent it, you have to learn more about the potential buyer.
- Loss of staff. Some potential buyers may just want to hire your key employees.
- Wear and tear on top management. Running a business and selling at the same time are very taxing.
- Business drop off. If you lose your focus because of a pending deal, business may fall off.
- Going to market too late. You should time your sale so that you are able to finish it before the market peaks and begins to decline. This means you have to understand the trends in the market.
And here are the top deal killers:
- Negotiating with only one buyer. If the deal falls through, you lose. And you won’t get the highest price.
- Misalignment among shareholders, employees, and management. The reasons for the sale should be clear to everybody.
- Contact at the wrong level. At the lowest level, employees may be threatened by a merger.
- Improper research of potential buyers. Don’t talk to them if they can’t afford you. Talk with qualified buyers. That takes research.
- Misunderstanding the buyer’s motives. In the very first meeting, ask the buyer why they want to do a deal.
- Inability to portray value properly. You need to back up the value of your company.
- Improper due diligence preparation. Get ready to answer the important questions.
- Not qualifying buyers. When you narrow down the list, make sure you have the right information.
- Not orchestrating all buyers properly. Any auction or negotiation process should be synchronized for maximum effect.
- Ego, greed and arrogance. After a deal is done, don’t overestimate your own clout. A buyer may walk away if you raise your price at the last minute.