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EXIT STRATEGIES
Preparing the Company for Sale

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Potential buyers for a
publishing company generally look hard at certain aspects of it, and vanish if
they do not like what they find. Fortunately, the same practices that will help
you run your publishing house more efficiently and effectively on a daily basis
will also help you position it for an advantageous sale.

 

Revenues and Sales
Programs

 

Buyers want to purchase—and
are willing to pay more for—companies whose revenues have been increasing
year after year because continually improving sales indicate that a company is
well run, both operationally and financially. In other words, revenue growth
shows a buyer that the publishing company’s products are selling and that there
is a high probability of recouping the purchase price.

 

Buyers are not willing to pay for
a publisher with flat or decreasing year-to-year revenues, poorly run
operations, and weak financial information and infrastructure.

 

Accordingly, a strong sales
program is key. It should include maintaining or growing sales throughout
negotiations with a serious prospective buyer to ensure that sales do not fall
before the deal is final. And it should involve concentrating on increasing
revenues in every sales channel you use—regular, special, foreign,
domestic, and rights related—both before you put the company on the
market and during negotiations with the buyer, which might take 18 months or
more, and could fizzle out altogether.

 

Bear in mind that concentration
issues increase the buyer’s risk factors and reduce the value of a business,
whether the concentration relates to customers, products, accounts receivable,
inventory, or sales channels.

 

Financial Information

 

Publishers should pay as much
attention to producing good financial information as they do to producing good
books. Proper financial practices and statements help the business run on a
daily basis while they validate its value for potential buyers. Sloppy
financial practices cost your business money every day, up to and including the
day it is sold.

 

Buyers want to see financial
information that is meaningful, accurate, and timely. It must be up to date and
easily accessible. Audited statements are the gold standard here. Audited
financials give buyers a high comfort level. When outside accountants have
verified the account balances, financial due diligence for the sale of the
company can often be streamlined.

 

Specifically, buyers want to see
that any company they are considering has a budget as well as financial and
operating metrics that it is using to help manage and direct its business. This
means that you should review all accounts on the profit-and-loss statement and
balance sheet with an eye toward what can be improved—paying special
attention to accounts receivable and inventory—and that you should ensure
that payroll and business taxes are always current.

 

Properly run operations provide
measurements of key operating data and help a buyer understand the costs of running
the business. Buyers can use this data to determine how much additional margin
they might obtain under various scenarios, and they will factor that
calculation into the purchase price they offer.

 

Accounts Receivable

 

Most sales of small to mid-sized
publishers are structured as asset sales, and buyers generally do not purchase
the sellers’ accounts receivable. But good accounts-receivable balances still
help publishers sell their companies, because they give the buyer a great deal
of information on how the company has been operated. Properly managed accounts
receivables show a buyer that the company’s revenues are good, that product
returns are normal, that the customer base is diverse, and that customer-return
surprises are unlikely after the purchase of the company.

 

Properly managed accounts
receivable also help the seller collect quickly after the sale; those cash
receipts are generally considered part of the price you are getting for your
business.

 

Inventory Levels

 

Buyers want to know that your
inventory levels are high enough so that fast-moving products will not be out
of stock when they acquire the company. At the same time, they do not want to
purchase slow-moving, old, or obsolete inventory.

 

This means that you should strive
to keep inventory levels in balance with sales, letting prospects see that they
would be able to recoup their investment in a timely manner and not have to
invest more cash in the company immediately after the purchase.

 

Contracts

 

A publishing company’s main assets
are its contracts, because they give it the ability to publish and sell works
in specified languages, media, and geographic territories.

 

For buyers, a key to the value in
a publishing company is often found in an assignability paragraph in the author
agreement. All author contracts need to be assignable. Otherwise, you cannot
transfer your rights in them to your buyer.

 

Looking Forward

 

Publishers sometimes neglect their
forward publishing plans when they put their companies up for sale. But buyers
want to see that you are still running the company for the future. A strong
forward publishing plan, with authors under contract, gives a potential buyer
reasons to believe in future revenue streams.

 

Also keep an eye on future
business environment conditions and issues, such as interest rates, which might
change in ways that would reduce or enhance your company’s value.

 

The next article in this series
will focus on ways publishing companies are valued.

 

A co-founder and publisher
of two successful trade book companies, Howard W. Fisher now operates The
Fisher Company and helps growing publishers with business development and
mergers and acquisitions. He is a former PMA president and a frequent PMA
University presenter.

 

Daniel R. Siburg, CPA, CVA,
has been a company president and CFO. He provides mergers and acquisitions
services to clients and presents media industry operating statistics and
commentary at many publishing forums.

 

For more information:
howard.fisher@thefishercompany.com, and

dan.siburg@thefishercompany.com.

 

 

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