November 2, 2017
So much more than the financial aspects, selling a business that in most cases required years to build and fine tune may be quite challenging. Faced with legal, economic, and emotional considerations, simply put, it is the most significant transaction most business principals will realize in a career. So the question is: Where and how to start?
The internet abounds with “How to….” articles or links to advisers to help entrepreneurs navigate the many options available. One point to embrace is that qualified guidance and information is not free. You do indeed “get what you pay for.” Although some of what is found on the internet is valid, some is absolutely not. Be wary of TOP DOLLAR claims from advisers; assurances by intermediaries are for the most part unsubstantiated guarantees. Not all Investment bankers are created equal. As in most professional disciplines, there are specialists. A calculated approach in selecting an investment banking partner affords the seller the opportunity to work with a senior team with decades of transaction expertise and a platform encompassing a wide range of industry categories.
Understandably, businesses are more apt to explore an exit during a downturn. However, selling during the growth cycle or even a few quarters of solid stability is always more attractive to potential buyers. The trend is your friend. Businesses are worth what they are worth today. Past performance and future projections matter, but only insofar as they support the story of a strong, stable, growing business today. Bottom line, money talks. All buyers want to realize a maximum quantifiable return on their investment.
During economic downturns, sales of companies often slows to a painful crawl. Those who are able to sell do so for deeply discounted valuations and unfavorable terms. Countless exit strategies were put on hold or never executed during the 2008-09 recession and for years thereafter. Many didn’t have the ability to fully recover experiencing bankruptcy or total failure. Although the markets are strong and healthy at present, the next downturn is just a question of time. There is no exception. To bank on continued growth indefinitely, with an eye on selling at the “perfect time” is playing a dangerous game of speculation. And unless an entrepreneur is committed to sticking with the business for 5 years after the next downturn, the time to evaluate a sale is now.
Businesses rarely begin exit plans until an internal projected exit or transition date is identified. As important as personal estate planning is to the individual, short, medium, and long term plans including exit strategies are equally important to a well-managed business. Being prepared and understanding the process, benefits the entrepreneur by being able to set realistic financial expectations, a working timeframe, and managing the emotional aspect associated with the eventual exit.
Selling a business requires the ability to plan, listen, compromise, and execute. The goal is to sell the business. Use the best tools available to achieve that end. Most good companies have capable and dynamic officers, but unless they are well versed in M&A execution, current market trends, and have hours of free time to run the process, it is strongly advised to trust a team of specialists who have successfully taken transactions from start to finish. Remember, the M&A investment banker is compensated by a negotiated retainer and percent of final sale price. But not all investment bankers are created equal. Do not settle on less than 100% accessibility to the senior bankers working the transaction, and total alignment in objectives and outcomes. It is important to have an honest and open relationship with the team. Listen to the advice very carefully and ask for clarification for matters not fully understood. Ready the emotions of separation. It’s hard to let go.
Pull the trigger and initiate the process. Selling a business takes time. Until a letter of engagement is negotiated and signed with your chosen investment bankers, the gears will be idle. There are many moving parts requiring an enormous amount of back office staging. Employ patience. Start to close usually takes from 6 to 12 months. So again, patience. Accordingly, deals aren’t deals until all the pieces are in place and they close.