- September 5, 2017
- Posted by: Ben Edwards
- Category: Blog, Resources
As the industry continues to change, more and more vacation rental company owners are considering an exit or preparing their business for sale. While many owners are struggling with the numerous technology changes facing the industry, or the disintermediation of the sales process, other owners are being solicited and are interested in selling or simply want to learn what their business is worth. The latter should not be a driver in pursuing the sale of your business, because every company in the industry has been solicited for sale. I wish I could tell you that each business is special or that a prospective buyer has been eyeing your company due to its progressive operation, but more than likely your business is on a list and it is being solicited along with hundreds or thousands of other vacation rental companies.
So, you’re considering a sale of the business or you’ve been approached to sell the business? In either case, the following points should be of use in preparation for a sale or to help serve as a more formal process regardless of the motivation or driver for selling. As a fundamental principle keep your best interests in mind and ask the question “Who’s Looking Out for Me?”.
- Do Not Pass Go, Do Not Collect $200 without executing a Non-Disclosure Agreement (NDA) first. Anyone that calls and wants to discuss if you’re open to selling your business will expect to sign an NDA. Anytime I receive one of those calls, I let the caller know that everything I have is for sale, to include my children, and that if he or she wants to talk more seriously, let’s execute a Non-Disclosure Agreement. Anyone that continues to poke and prod after you’ve requested an NDA may not be the right partner.
- Once you have a fully executed NDA, feel free to disseminate high level information about the business. Our goal at this stage is to convey enough information to entice an offer. Be careful not to communicate detailed data or proprietary information at this stage, as that information can be shared subsequent to an executed Letter of Intent (LOI).
- Once a fully executed LOI is complete, you’re ready to begin the due diligence phase of the process. Due diligence is the buyer’s opportunity to ‘pop the hood’ on the vehicle and review just about every facet of the business. Conversely, prospective buyers should be efficient and organized in their process. The idea is to prevent ‘fishing’
- As diligence continues, a legal Purchase Agreement should be created using the key points of the Letter of Intent and market rate terms. It is important at this point to engage legal counsel. Legal counsel can make or break a vacation rental transaction. Often times, local real estate attorneys may not fully understand the interworking’s of a vacation rental operation. It is advisable to find a law firm that understands the idiosyncratic nature of the business and can represents your interests in an experienced manner. Once an attorney is engaged, it is important to note that there are acceptable levels of risk in a transaction, however, when risk hits an unreasonable level, it is time to pull back. Engaging in a transaction where the purchase price is tied to, or contingent upon, future unit count presents entirely too much risk and generally does not produce an optimal outcome. It is advisable to avoid these contingencies, as the risk often times outweighs the reward.
- As diligence is finalized and the Purchase Agreement is approved and executed, transitioning the business is paramount. A well organized, thoughtful and efficient plan will create a smooth transition and ensure the transaction stays on the right track.
As you contemplate the sale of your business, know that there are more buyers than sellers. There is no reason to move forward with unreasonable deal terms or incur too much risk. It is simply not worth it. Following a formal process and using a transaction advisor will help ensure your business is sold for maximum value and the sale is successful. Fundamentally speaking an engaged transaction advisor is the entity ‘Looking Out for You’ providing the following services:
- Present the business for maximum value.
- Identify qualified buyers and initiate Non-Disclosure Agreements
- Ensure qualified buyers received the right reports and proper amount of information.
- Keep the process organized and moving forward efficiently by soliciting offers with sound market rate terms that do not present an adverse amount of risk.
- Leverage industry and market experience for offer acceptance guidance.
- Successfully close.
- Transition assistance and guidance.
In short, an experienced and qualified transaction advisor is the one “Looking Out for You”. The advisor is intent on maximizing the value of your business, ensuring deal terms are fair and reasonable and that the transaction closes efficiently and successfully. One wrong turn could materially and adversely impact the entire transaction. By leveraging industry knowledge as well as experience in markets throughout the industry can mean the difference between a well-executed, and profitable, exit strategy or regret.