Are you ready to sell your company or wondering if now is the right time?
Regardless of whether you’re just beginning to think about selling your company or are ready to pull the trigger on a full-blown process, if you haven’t been through a sale before, there are a few things you should know.
What to Expect:
When you engage in the sale of your company, you will need to pivot your perspective from thinking like an owner to thinking like a buyer. Owners are focused on maximizing top-line revenue and minimizing net income (for tax purposes). A buyer is focused predominantly on strategic fit, bottom-line profitability and what it will cost to integrate your company into their organization. They are thinking about everything from how to increase revenue to what it will cost to on-board your employees.
M&A processes can take time – 9 to 12 months or more is standard. Primary stages include:
- Due Diligence collection, review, analysis and clean-up
- Prospect List strategic development and compilation
- Confidential Information Memorandum development and circulation
- Prospective Buyer Diligence and Management Meetings
- Letter of Intent (LOI) solicitation, review, negotiation and acceptance
- Follow-on Diligence and Management Meetings
- Purchase Agreement review and negotiation, and
- Deal Closing
Each stage of the process is important. It’s essential to be thorough in your preparation and flawless in your presentation.
Purchase Price:
There are many different ways to value a company. Three of the most common approaches are discounted cash flow, book value and comparing your company to public company trading values. These methodologies have value and can be used to triangulate to an appropriate purchase price. But in the end, it usually comes down to what the market will pay for your enterprise. Your M&A advisor can provide you with market comps, which are usually purchase prices as a multiple of revenue or EBITDA (earnings before interest, tax, depreciation and amortization), to show values for companies of your size and in your industry.
Your EBITDA margin and any strategic opportunity your company offers can impact this valuation. If your EBITDA margin is stronger than your competitors’ or your company offers a buyer a strategic advantage (product, location, IP, etc.), it is not unreasonable to assign a premium to a multiple.
Deal Breakers:
Once an owner makes the decision to sell their company, suddenly there is an urgency to sell. Owners who rush the process often end up paying a price – literally – when a prospective buyer uncovers issues that have not been previously identified, addressed and corrected. When a prospective buyer uncovers one issue or identifies a discrepancy, they immediately begin to question absolutely everything else, which can be cause for significant discounting or blow up the entire deal.
Sale processes can be exciting and all-consuming, but it’s essential that an owner stay focused on running their business and lean on their M&A advisor to drive the sale process. Ownership will be involved in the process and sign off on key decisions, but the owner’s primary responsibility is making their company perform at the top of its capacity. A sudden dip in sales or an operating snafu can have an immediate, negative impact on the success of the sale process.
Nothing can derail an otherwise successful process like a previously undisclosed skeleton in the company’s closet. Prospective buyers are bound to uncover secrets like these during their diligence process. It’s important to be up front with your advisor and clear on any issues you may have so that these concerns can be addressed and corrected before you go to market.
Navigating the M&A process can be complex and demanding, but with the right preparation and a trusted advisor at your side, you can maximize the value of your business and ensure a successful sale. Remember, the key to a smooth transaction is transparency, strategic planning and staying focused on maintaining your company’s performance throughout the process.
C Squared Solutions provides interim or fractional CFOs, COOs, and CEO advisors in nearly all industries. We mentor and advise private company officers frequently through sophisticated and experienced management experience. Give us a call or visit our website for more information and details. We have been there and done that through serving more than 100 companies, 250 years of combined experience, and having sold our companies totaling more than $500 million!
