The Ultimate Guide To Help Sell a Construction Company

The Role of Construction Business Brokers in Selling a Construction Company

M&A Advisors or construction business brokers in the lower middle market segment are expert in achieving growth through Mergers and Acquisitions. Their expertise helps both buyers and sellers, and they are the best professionals to use for selling lower middle-market businesses. They have several tasks to manage while working with businesses for sale in the construction market.

Qualifying Potential Buyers Through Buyer Analysis

One of their most important tasks is to look for buyers looking for growth through acquisition. Potential buyers often include next of kin, employees, single investors, Private Equity Groups, and other types of corporate investors. M&A trends show that several types of acquisition-oriented businesses also look to buy businesses in the commercial construction industry. 

Fortunately, M&A Advisors know how to privately share information about private companies for sale without divulging sensitive details about the business because of their experience. Sometimes, competitors end up wanting to buy construction-industry middle-market businesses for sale, so the need for confidentiality matters. 

M&A Advisors can maintain confidentiality because some deals do not materialize. If you were to release sensitive details in documents and records, competitors would have that valuable information for free. It is wise to follow the advice of your knowledgeable M&A Advisor to protect your business’s intangibles. 

Your M&A Broker knows when to share financials with a buyer and when to ask a seller for their financials. They might ask the buyer to sign a Confidentiality Agreement or a Non Disclosure Agreement before sharing any financial information with them. Before sharing the seller’s business finances, the M&A Broker will vet the buyer by seeing their financial information. 

Developing the Exit Plan

Along with vetting buyers, the M&A Broker will also work with the business’s exit plan. They will create and execute the listing in a confidential manner when requested by the owner of the existing business for sale. Once the business is listed, the M&A Advisor will also work on marketing and originating a deal or managing numerous offers and deals. 

The M&A Broker is heavily involved in valuing the business to achieve the most accurate value. They look closely at financial records and the efficacy of the intangibles. Once they have the value, they work on a buyer list to find the investor who is willing to make a deal on a profitable business for sale. 

The M&A Advisor is focused on creating the exit plan, so they also work hard to maintain the plan’s goal. If something needs to change, your M&A Advisor will contact you to discuss a strategy adjustment. 

Originating the Deal

Your M&A Advisor will also work hard to market the deal. Their expertise in Mergers and Acquisitions gives them a reliable list of vetted buyers who might be interested. 

The broker will also create a sales package including a Confidential Business Review (CBR) to generate interest for buyers who might jump on the opportunity at first glance. Through targeting and social selling, they confidentially discuss the value of investing in middle-market businesses for sale. 

If any of those investors show interest in buying California businesses for sale, the M&A Brokers evaluate their offers. They offer the buyers a market-offer analysis with detailed information about construction industry trends. Your M&A Advisor works to get you the best deal while helping buyers understand the value of your business. 

Negotiating with Buyer Due Diligence

Sellers need to participate in due diligence to share necessary information about the business. Sellers need to show many documents to buyers so they fully understand what you are offering for sale. This due diligence shows that your business has been profitable and supports what the seller represents to the buyer. 

Before sharing the due diligence, many buyers sign a Letter Of Intent (LOI) as a non-binding agreement about the purchase price and the potential aspects of any deal. Once buyers sign the document, your M&A Broker will share a long list of documents that you need to provide. They include financial documents like:

• Income statements
• Records of accounts receivable and payable
• Balance sheets and tax returns from the last three to five years
• Profit and loss records from the last two to three years
• Reconciled cash deposit and payment records
• Bank loans and letters of credit
  
  

You will also need to provide business documents like the seller’s claims about the business, including reasons for selling and details about the business’s reputation. You will also share documents about soft assets like intellectual property and trademarks. Other necessary documents include:

• Partnership agreements
• Lease arrangements
• Utility accounts
• Minutes from management meetings
• Private details
• Information about automated financial systems
• Audit work paper files
• Details about credit and historical searches related to the business
  
  

M&A Brokers can give you advice about sensitive information in some documents. For example, your due diligence document package should not include private details about employees, vendors/suppliers, and customers. You should also only provide the necessary details about contracts with employees, other contractors, and clients after the sale of the business closes. 

Due-diligence document packages should include lists of assets like equipment, tools, fixtures, and vehicles. Your document package should also include the condition of the assets. If licenses are necessary, the list needs to include details about related business licenses. Your M&A Broker will also share the value of the business so buyers can check on the fairness of the asking price. 

M&A Advisors recognize that buyers are hesitant to make offers when there are warning signs in the due-diligence packages. Buyers become uninterested when a due diligence document package does not include the reason for sellers wanting to divest and more. They also lose interest when they are not given financial statements, information about employees, and tax statements. 

Other warning signs for buyers include:

• Not agreeing to a reasonable period to conduct due diligence
• Not introducing potential buyers to landlord, or other agents such as insurance companies
• Businesses for sale that are engaged in legal proceedings
• Sellers who want quick closings
• Sellers and businesses with questionable credit histories

Negotiating the Definitive Purchase Agreement

Offering middle-market businesses for sale involves several steps. The M&A Advisor works closely with you and your legal advisor, especially while negotiating and finalizing the Definitive Purchase Agreement. This Definitive Purchase Agreement helps both parties reach their goals for the transaction and allows no room for error as it completely represents the legal wishes of each party. 

A good M&A Definitive Agreement is the lynchpin of a good transaction. Both seller and buyer exchange a large amount of information from different sources.  This is often over many months of conversations.  These exchanges are then condensed, with their individual interests, as best as possible into the Purchase Agreement. 

Items a typical Definitive Purchase Agreement may include:

1. Treatment of Shares, Options, and any other Securities; if appropriate to the transaction
2. Representations and Warranties
3. Covenants
4. Solicitation (“No Shop” clause)
5. Financing
6. Termination Fee (or “Break-Up Fee”)
7. Indemnification
8. Material Adverse Change (MAC) and Material Adverse Effect (MAE) Clauses
9. Closing Conditions

The Definitive Purchase Agreement can have potential pitfalls, so your M&A Advisor needs to keep the communication open with the Buyer and their Deal Team as well as the Seller and their Deal Team.

The M&A Definitive Purchase Agreement also needs to include details about tax obligations and consequences, especially if shareholders are involved.

Avoiding Pitfalls if you have a Buy-Sell Agreement

What if the seller is two or more individuals?

Many businesses have multiple owners or shareholders. Getting an agreement from a majority of the shareholders about selling the business and being willing to accept an offer can be challenging. One of the shareholders may not have any interest in selling the business at all or may want something specific most buyers will not be willing to agree. If this is the case, hopefully there is a Buy-Sell Agreement in place as this will outline what each shareholder needs to do.  A few years previously I had a transaction with 9 shareholders.  One shareholder with a minority interest initially refused to sell.  Eventually they changed their mind but it was stressful while this played out.

If no Buy-Sell Agreement is in place and there is tension between the owners and shareholders, the pressure to decide the future direction of the business may be challenging.  This article provides additional information for an owner or shareholder with how to avoid buy-sell agreement pitfalls. To help their clients, M&A Advisors should understand the importance of assumption of liability, so their buyers and sellers know who is responsible for any lingering claims. 

The agreement also needs to have information about indemnity clauses regarding operations. For Construction Companies, concerns about environmental liability, breaches of warranties, and other issues need to be factored into the indemnity clauses of a Definitive Purchase Agreement. 

Buy-sell agreements can be confusing, so it is helpful to learn how to understand buy-sell agreements and how a buy-sell agreement can save a business.

Buy-Sell Agreement Benefits

A buy-sell agreement benefits both the buyer and the seller, as well as other stakeholders like vendors, employees, and partners. These legal documents act much like an insurance policy for the people involved in a business transaction. Buy-sell agreements can protect the people who start a new business or buy an existing business in the building industry. 

A legally binding buy-sell agreement also offers protection when bringing a new partner to the table and protecting the business if one of the stakeholders dies before money changes hands. A well-crafted agreement services the company by being prepared for changes in laws, technology, and other stressors and strains on the industry. 

Your M&A Advisor understands the legal intricacies of buying and selling a business in California. A unique aspect of California real estate law is that businesses must have escrow in place before the sale is completed. By specializing in local business mergers and acquisitions, Rogerson Business Services understands the intricacies of the state’s requirements. 

Negotiating the Terms

Your M&A Advisor will negotiate the terms of the sale and include them in the buy-sell agreement. At this point, the buyer knows you have an emotional attachment to the business and have priced the deal with that in mind. They also know that the seller values the down payment and cash they will receive. 

As the deal moves closer to the close, the buyer knows that there are still opportunities to negotiate. At this point, the M&A Advisor is necessary because they do not have an emotional attachment to the business or its assets. They will keep the negotiation moving to get the terms set and the deal closed. 

Finalizing the Contract

The M&A Advisor will finalize the contract by checking that all required documents are completed and shared. They also check that all required legal documents are completed, so new liens will not be placed on the business. Once the contract is set, the sale can close. 

Closing the Deal

At this point, the M&A Advisors have checked the documents, followed laws, and prepared the buyer and seller for the transaction and transition. The M&A Brokers will facility the translation, so the transition is as smooth as possible. 

Once the deal is finalized and closed, the M&A Advisor makes sure that proceeds are distributed properly to the seller. They also ensure that the buyer has access to vital information like employee records, customer contracts, and vendor details.