l Closed loan reports for the last two years and year-to-date l Employee census including job title, start date, position, compensation and benefits election.
Selecting the correct buyer
Full disclosure Share the material components of
It’s not over until it’s over
Continue running your business as usual until the deal is closed. It might make sense to hold off on major purchases and maybe even delay some hires. But, be careful. You may have Sign a Non-Disclosure several deals fall apart before finding something that works. Don’t wake up Agreement (NDA) You will provide and discuss confi- the morning after deal number three dential information. You need to pro- falls apart to find your company isn’t tect your company. Most companies prepared for tomorrow. will have a standard Non-Disclosure Agreement (NDA). Read the NDA, seek Lean into your new role legal counsel if needed, and request You probably will not be the presithe revisions you need in order to be dent or CEO anymore. It may not be comfortable sharing sensitive infor- easy to transition from having no boss to being a good employee. If you mation. can’t make that transition, you will Don’t do the limit your opportunity and those available to your team. Learning to deal on your own If the buyer is purchasing the stock of trust a team you didn’t build and your company, the deal can become learning to embrace decisions you pretty complicated. You will need would not have made is difficult. You qualified professionals that can offer will have an advantage over most advice, answer questions, and ensure managers. You’ve been in charge. You you understand all aspects of the know what you expected from team documents you sign. Even if the members and you understand what a buyer is just hiring you and your business owner faces on a daily basis. team without really buying anything, Embrace your new role and use your you should get professional advice. unique experience to excel in it. You may shut down the old entity after the transaction is complete. You Setting expectations: will need to understand the risks and Don’t overpromise … liabilities that could follow you per- over-deliver sonally. You may also need advice to No matter how well it goes, transacclose the doors properly and with as little expense as possible. Each transaction is unique and everyone’s budget has limitations. Only you can decide how much you’re willing to spend and what advice you really need. But, don’t do it on your own.
Expect the best, but plan for the worst Of course it’s important to decide how the millions will be shared when
tions are never easy and never go exactly as planned. So, be careful about the expectations you set. You will probably bring some team members in on the deal before the deal is done. It’s important that they are prepared for the deal close as well as being prepared for the deal to fall apart. Make sure they understand you aren’t going to close a deal that doesn’t make sense. That means they may put a lot of time and effort into more than one deal that goes nowhere. When you finalize a deal and make a formal announcement to your team, set realistic expectations. Make sure they are excited by the potential of the deal. But also make sure they understand it won’t be easy. To realize the potential the deal represents for everyone, they will need to be prepared for a lot of work as well as some bumps and bruises. There’s a lot to think about when it comes to selling your company or merging your team into another organization. If you haven’t thought about the tough questions and created a plan, then get started. Make sure your team knows what you’re thinking and has a voice in defining the future. In the end, teaming up with another company should be about taking a step forward. If the future isn’t brighter together, then stay apart. Doug Reilly, regional vice president for Interlinc Mortgage Services LLC, is the founder and former CEO of Consumers Mortgage Corporation (CMC) and The Home Lending Source (CMCO). His experience includes the purchase, and eventual sale, of three home health agencies, the sale of CMC, participation in the purchase of several mortgage companies by CMCO, and the eventual sale of CMCO. He may be reached by e-mail at dreilly@lincloan.com.
calendar of events N A T I O N A L
M O R T G A G E
P R O F E S S I O N A L
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n Arizona Mortgage Professional Magazine n MARCH 2014
If the value of your company is primarily based on future loan volume, then you should expect your income to be tied to an earn-out. If you’re selling servicing, real estate or other assets, then you should be able to negotiate for payment up-front. Even in this scenario, it’s likely that the majority of your income will be tied to an earn-out. Make sure the buyer is financially sound and that their model and culture will be a good fit. Spend time getting to know the team you will depend upon. Make sure you can communicate well and get along. Investigate the on-boarding and integration process and talk with people who have recently been through it. Make sure you choose the right buyer and not just the one that dangles the biggest carrot. It may be the most important decision you make.
the deal goes well. Most people think that part through thoroughly. It’s what happens when things go poorly that is often overlooked or given little thought. Negotiating the upside could be the difference between rich and richer. Negotiating the downside may be the difference between losing everything and just changing jobs. So, negotiate the downside as if it’s going to happen. Then, put it behind you and go back to the optimistic view you’ll need to realize the upside.
NationalMortgageProfessional.com
Keep your initial presentation focused on the numbers, important trends, and the indisputable facts. If the real value of your business is tied to things that can’t be proven or quantified (goodwill, such as reputation and culture), then it’s good to include these things. But, keep the intangibles to a minimum in the beginning. Drive the message home face-to-face after a relationship has begun to develop. Be cautious about the assumptions you make. For example, submitting projections that exceed historical growth or don’t fit with industry volume expectations can back fire. It can give the impression that you’ll be unrealistic when negotiating value. It may also reduce the buyer’s perception of your value as a manager. If the buyer believes your projected volume is unreasonable, they are likely to tie as much of your income to hitting those projections as possible. So, express your optimism verbally and keep the written projections conservative.
the deal before the buyer finds out on their own. Don’t be afraid to address inadequacies of the business. It shows confidence and awareness when addressed up front. If the buyer has to ask, your response and credibility will be diminished by the position you’re in. Put yourself in the right position by being the first to bring it up. You’re better off devaluing the deal than losing the buyer’s trust or ending up in court. Unless the buyer is purchasing the stock of your company, they shouldn’t be exposed to legacy risk from your past. If that’s the case, then focus on facts that could reduce income or volume, create legal or compliance risk, or negatively impact the buyer’s reputation.