Fall 2014 issue of Horizons

Thus, while middle-market businesses may believe that they lack the resources to make IT investments, when confronted with these types of scenarios (and there are quite a few possibilities) it becomes evident that developing an IT strategy and creating a more robust IT infrastructure will benefit you not only at the time of your exit, but also in the years preceding your exit. IP assets are of increasing importance in the global economy, and as a result, prospective buyers are dedicating greater resources to IP due diligence. For sellers, this is an often overlooked opportunity. Why? For one, getting ahead of (and addressing) potential gaps or weaknesses in your business’ use of IP can provide for a smoother due diligence process and, ultimately, greater exit proceeds. See article on page 28 for more on protecting IP value. Understand What It Will Take to Retain (Key) Employees Post-Exit Transitions create uncertainty, and uncertainty can be perceived negatively by employees. While it may make sense to keep some or most all of your employees in the dark until a transaction is consummated, it is important to a prospective buyer that your key employees understand what is occurring and what it means for them. Recall the first takeaway from this article —build a capable management team (that can run the business without you). As these individuals will likely be the leaders for the business going forward, you need to understand what it will take to have your employees’ buy-in during the sale process (to keep their incentives aligned with your exit objectives) and post-exit (to keep them motivated under new ownership). In fact, a prospective buyer will often want key employees to sign employment agreements as a condition to the Document and Protect Your Intellectual Property (IP)

entertainment, travel expenses, sports tickets, and even vehicle payments and insurance. By eliminating the questionable amounts in the years ahead of potential exit, you can ensure that you capture maximum value for these “add-backs.” Consider Developing an Information Technology (IT) Strategy IT can be a source of competitive advantage for many middle-market businesses. After all, IT is a foundational, value-added resource on which nearly all business functions rely. However, all too often, organizations view resources deployed in IT infrastructure as expenses instead of as investments. By taking the time to develop an IT strategy that provides for a stable, secure, and scalable IT environment, you will demonstrate to a prospective buyer that IT is a core driver of your business’ performance rather than just a “cost of doing business.” Why invest in IT infrastructure? Consider data security. The loss or corruption of critical data, whether through a failed server, unauthorized employee access, or a security breach, can have devastating consequences on your business’ ability to continue as a going concern. Similarly, consider employees that are duplicating efforts at two different locations because they are working on different systems. Surely these human resources could be better deployed. With fewer systems, the IT environment becomes easier to secure and service. These disparate examples quickly show how dependent organizations are on their IT infrastructure. In the first example, the business will likely experience a financial cost to recover from the loss event, while in the second example the business is already incurring a financial cost but does not fully realize it.

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