How Not to Sell Your Company: Mistake No. 1

Having sold over $1.5 billion of industry clients in the past few years, we keep seeing the same mistakes over and over again.  So, we thought we would begin laying out the most common mistakes – those that seem to hit not only smaller players, but also those with annual revenue exceeding $100 million. During the height of the merger and acquisition boom, a number of business brokers sent out hundreds of letters and emails to contractors, advising them they could sell their business, that the broker had “interested parties” actively seeking the XYZ market, and so on and so forth.  We still see these frequently. Most of these brokers couldn’t tell you difference between a slider and a double-hung, or between fascia and soffit, and while some eventually developed some understanding our industry, the majority were simply looking to take advantage of contractors eager to sell.  They charged too much and never had the contractor’s best interest at heart – their only goal was to close a sale and get a fee.

The first indication of this and the first most common mistake?  The confidentiality or non-disclosure agreement (NDA) presented either by the broker or the interested purchaser.  We consistently received, and still do, NDAs with a 1-year or 2-year term.  Sometimes the client has already signed these, other times we can still intervene to protect the client.  The brokers won’t even comment on NDAs as a rule, but the plain truth is that any confidential information you turn over to a broker or a potential purchaser is certainly still going to be confidential 12 or 24 months down the road, right?  We never advise signing any NDA under three years, at a minimum.  In fact, ask the broker or purchaser why they would everneed to use your confidential information if the sale doesn’t go through and watch them try to give you some absurd answer.

Keep in mind that if the deal never happens, the broker/purchaser is probably either going to find another seller or may greenfield the business and start it up themselves.  In either case, your future competitor is now using your confidential information!  And the reasons they give? “2 years is industry standard” or “No one else we have brokered/purchased ever complained” are a couple we’ve heard.  The first is a garbage response and the second, if true, means they dealt with foolish sellers – don’t make the same mistake.

Berenson LLP serves as counsel to the remodeling and home improvement industry, providing legal compliance solutions, quality control counseling, litigation defense, and agency representation to industry clients throughout the United States. This client alert is intended to provide general information regarding industry legal issues and developments to our clients and other friends. It should not be construed as legal advice or a legal opinion on any specific facts or situations. For further information on your own situation, we encourage you to contact an attorney at the firm. For more information on the legal solutions provided by Berenson LLP, please contact us by phone at 561.429.4496 or by email at info@BerensonLLP.com.