Exit Planning

Preparing to Sell Your Company and Poker – They Have More in Common Than You Think

Preparing to Sell Your Company and Poker Have More in Common Than You Think

Preparing and executing  the sale of your company in any capacity is a very complex and nuanced event.  It may be one of the most challenging, yet rewarding things you ever encounter, and I often think of interesting things in life as analogies.  It helps me explain my thought process to others.  Often the analogies are so bad that people make fun of me, rightfully so, for days after.  One of my favorite vehicles for analogies happens to be poker. 

Poker is so simple, yet so nuanced.   I thought I’d take a stab at helping entrepreneurs running defense companies understand the basics of preparing to sell some or all of your company.  You can only go so far in a couple thousand words, but hopefully this will at least stimulate some thoughts and paths for investigation.  You need to educate yourself before you get too deep into serious planning.  As always, I am happy to jump on a call and discuss the real meat behind any of these topics.  This isn’t intended to be a true tutorial and every situation is unique.

And don’t worry if you don’t play poker! It’s not that deep of an analogy 😊


As in Poker this is actually the most important step for achieving success.  Understanding your position, what cards you have, what the stakes are, and who all the other players are  ( and their tendencies ) are what makes you successful when the action starts.  Gather as much information as you can before deciding to play this hand now.

Understand what you want and why.  Are you going through this transition because you need to prepare for what’s next in your life and move on? Or are you taking on a partner to help move you and your company up to a new level, that would be difficult attaining by yourself?  What role do you want for yourself?   What about your leadership team? What about your employees?  If there is more than one owner and are you in agreement on these goals?  Establishing this baseline is important before you get too far in.

Learn and understand the process before getting into it.  It is complex and nuanced.  This is a good place to reach out to friends and associates who have been there before.  The more you know ahead of time, the fewer mistakes out of speed or ignorance will be possible.

Develop a plan for your internal and external teams. Your internal team will consist of your trusted inner circle.  People that you are proud to put in front of a prospective investor and sell how great you are.  These are the people that know your secret sauce and how to present it. Diversity of thought is useful here.  Investors like to know that there is leadership talent that extends beyond the ownership.  In fact, these people are often the ones they know they need to depend on for the long haul, especially when owners start to drift away.  At the very least, this team will need to include your head of finance.

Your external team is made up of “must haves” and “might wants”

  • You will need a strong attorney who is well versed in mergers and acquisitions.   This is typically not a skill found in many general counsel practitioners. So don’t skimp.
  • You’ll likely need an outside financial expert or organization to help you with validating your Quality of Earnings ( QOE ) and other financial diligence items.
  • Owners/Shareholders should insure they get tax planning advice from a strong CPA that understands exit planning issues and can advise you on friendly structures.
  • Depending on your situation, you may want to have a broker/banker to assist.  This will depend on your current position.  In some cases, it’s a necessity.  In others, it is not needed.
  • Mentor/advisor/coach – it can be useful to have a third party to run ideas by and learn from.  Having this person on your team can save you lots of money in the long run.  It can even make you extra money.  Mostly, though, it can be a shoulder to lean on to keep you from suffering too much brain damage during a very trying process.

Get/learn/attain/study how the current market looks concerning value and risk. Understand the drivers that will push your value up in the eyes of an investor.  Also understand how they will look at the risks and obstacles to attaining value.  Learn to see that from their perspective to better understand how to present your business.

Prepare materials – you should have most of the following data prepared or near prepared:

  • Overview of the company, leadership, financials, secret sauce, customers, pipeline, etc. This will become a CIM ( Confidential Information Memorandum )
  • Quality of Earnings ( QOE )
  • Historical financials; projected financials for a few years forward. Ideally 5 years.
  • Sales pipeline and methodology for estimating projected revenues.

Post Flop

Prepare the team – It takes a team of leaders to make this happen. It doesn’t have to be a huge team, but it needs to be more than you.   Lots of data items will need to be provided. Information discovery meetings take time and preparation. You may get many detailed checklists of questions and follow-ups that may feel overly repetitive.  Your leaders need to be ready for the grind and make sure the day to day operations do not suffer too greatly.

What are IOIs and LOIs?  Indications of Interest and Letters of Intent are formal documents investors use to communicate the terms of their interest.  DO some research on these subjects so you can factor them into your thinking and planning.

Do your own research on the investor. Diligence is a two-way street. It’s easy to over focus on the fact they are doing a deep dive on you.  There are many reasons why you want to know more about them as well.  Don’t be afraid to ask for and check references

If the circumstances are not what you hoped, consider folding and living to fight another day.  It’s always an option if things go down a path you are not comfortable with.  This is the best time to take a breath and take stock on where you were hoping to go and where the market has placed you.  Does this meet your expectation?

Turn card

During the process there will be a time when you will likely need to agree to exclusivity with an investor. Keep in mind that these organizations and people spend significant amounts of money to research and do deeper diligence on you.  They need attorneys, accountants, and many other possible specialists.  They are often unwilling to engage in the costliest portions of these activities until after they determine you are serious.

Speaking of deeper diligence, this is where it gets really tedious and can burn your team out.   Depending on the complexity of your company, and that of the investor, there may be many thousands of documents needed to help a third party understand who you are.  Keep in mind that that investor often needs to go before a committee or board and present your case for a final decision.  So not only do they need to be convinced but they have to turn around and convince their checks and balances.

The purchase agreement starts to take shape now, often based on the buyer or sellers’ legal starting point.  This is the document that will eventually consummate and finalize the deal.  It’s important and will take time to work through the individual wrinkles.  This is one reason you need to have a very M&SA savvy attorney on your team from the beginning.

It’s not too soon to be working with your close leadership team on a communication plan to your employees.  Yes, you are trying to keep this a close secret right now.  However, when it comes times to talk to them, you may no longer have the time to properly prepare a statement. So start  thinking about this plan now, including the logistics of telling everyone the same story at the same moment.  The bigger the company the harder the logistics.

While you can certainly still fold, be careful about letting your own fear bluff you into doing that for the wrong reasons. Out of all the companies that enter into a process to sell their company, only 30% actually reach a closing event. A sizable chunk of the 70% that fail to reach that milestone are due to an owner struggling with their own fears of the sale  The fear of making a bad decision that you can’t undo.  The fear of missing out on a better deal in the future.  The fear of losing your baby. The fear of losing your identity.  These are real things and they tend to appear at a time where it’s difficult to talk it through with someone who can have true empathy. The truth is, most friend and family will not understand.  They don’t see the true emotional turmoil. Instead they only see the dollar signs and think it’s a good problem to have, so whatever.  This is a great time to have a coach or a mentor who doesn’t have a bet at the table and who can talk you off a ledge. “The Sellers Journal” by Denise Logan is a great book that covers this topic. I’ve got a few copies. If you send me a note, I’ll send you one.


Selling Your Company

Ok you’re almost there!  But theres still so much more to do to close the deal.  Since this piece is mostly about preparing for the process, I’ll just hit the highlights of things that may occur or need to be addressed.  Each one has its own long description that depends on your particulars.

  • Finalizing important items that were likely started earlier.  Things such as working capital and the latest financials.
  • There are a multitude of things to be finished such as retention plans, escrows, closing dates, internal and public announcements, success bonus plans, etc.
  • If your company is joining a larger enterprise, it’s also time to be getting very serious about the integration plan and where everyone will fit on day one. You need to ensure absolute continuity for your customers and employees.  Work needs to keep getting done and payroll needs to not miss a beat!

Once you sign the purchase agreement and related documents you can take 45 minutes off to rest and relish all you’ve just been through.  Then the real work starts 😊   Plus you have to stack your chips!

If you’re looking to learn more about selling your defense company, or are interested in the nuances of Exit Planning, feel free to give me a call. I am happy to get a conversation started and help you figure out the best strategy for your business and goals.


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