As the industry continues to change, vacation rental company owners are increasingly considering an exit or preparing their businesses 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 businesses are worth. Being solicited 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 because of its progressive operation. More likely, though, your business is on a list and is being solicited along with hundreds or even 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 useful in preparing for a sale or be helpful as a more formal process regardless of the motivation for selling. As a fundamental principle, keep your best interests in mind and ask this question: “Who’s looking out for me?”
1) NDA
Do not pass go, and do not collect $200 without executing a nondisclosure agreement (NDA) first. Anyone who calls and wants to discuss whether 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, including my children, and that if he or she wants to talk more seriously, we need to execute an NDA. Anyone who continues to poke and prod after you’ve requested an NDA may not be the right partner.
2) Letter of Intent
Once you have a fully executed NDA, feel free to disseminate high-level information about the business. Your 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; that information can be shared after an executed letter of intent (LOI).
3) Due Diligence
Once a fully executed LOI has been completed, 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 every facet of the business, but they should be efficient and organized in the process. The idea is to prevent fishing expeditions.
4) Purchase Agreement
As diligence continues, a legal purchase agreement should be created, using the key points of the LOI 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, local real estate attorneys may not fully understand the interworking of a vacation rental operation. It is advisable to find a law firm that understands the idiosyncratic nature of the business and can represent your interests in an experienced manner. 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 in which the purchase price is contingent on future unit count presents entirely too much risk and does not produce an optimal outcome. It is advisable to avoid these contingencies because the risk often outweighs the reward.
5) Transitioning the Business
As diligence is being finalized and the purchase agreement has been approved and executed, transitioning the business is paramount. A well-organized, thoughtful, and efficient plan will create a smooth transition and ensure that it stays on 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 to incur too much risk. It is simply not worth it. Following a formal process and using a transaction adviser will help ensure that your business is sold for maximum value and the sale is successful. An engaged transaction adviser is the entity looking out for you by providing the following services:
Position and present the business for maximum value
Identify qualified buyers and initiate NDAs
Ensure qualified buyers receive the appropriate reports and 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
Close successfully
Provide transition assistance and guidance
An experienced transaction adviser is intent on maximizing the value of your business and ensuring that deal terms are fair and reasonable and the transaction closes efficiently and successfully. One wrong turn could adversely affect the entire transaction. Leveraging industry knowledge and experience in markets throughout the industry can mean the difference between a well-executed and profitable exit strategy or regret.
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