Selling your business will be the biggest and most important decision you will ever make. Do not underestimate how complex and emotional the process can become. Hire a professional. A good professional will earn his or her fees several times over and save you sleepless nights.
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Welcome to yet another M&A Insights podcast. This is your host Madhur Duggar here to talk today about the process for selling your business. This podcast provides 12 tips that sellers should follow when selling their business. If you wish to learn more about the middle market M&A world or listen to my other podcasts please connect with me over linked-in or email me at [email protected] (SPELL IT OUT) and I’d be happy to share with you the URL for my other podcasts.
Let’s get started!
1. Understand Why You Are Selling – Get an assessment done beforehand.
Understanding why you are selling will impact key choices around the sale process such as advisor type and buyer base. If your goals are primarily financial such as “cashing in” for retirement, you have time to wait for the right valuation. If generating immediate liquidity to meet personal needs is your primary goal, collaborating with an advisor who has an established network of buyers with the ability to execute immediately should be your focus. Either way, it is better to be prepared beforehand by getting a professional assessment of the current value of your business.
2. Keep the Sale of Your Company to Yourself – Avoid business disruption.
Do not let your competitors, customers or employees know your company is up for sale. This minimizes the risk of disruption to your business, e.g., the risk that competitors will raid your key employees or customer base. Most importantly, use an intermediary skilled at arranging confidential transactions to avoid any leaks. Make sure to ask them exactly what their process is. Make sure they give you the option to approve buyers before they share your information.
3. Retain an Expert to Help with the Sale – Your advisor is your face to the market.
Selling your business will be the biggest and most important decision you will ever make. Do not underestimate how complex and emotional the process can become. Hire a professional. A good professional will earn his or her fees several times over and save you sleepless nights. A professional can be objective, help you analyze your options, function as a buffer between the parties, and be a problem solver when the parties reach an impasse. They are also your face to the market and are your first chance to make an impression.
4. List Your Company on an Exclusive Basis – Incentivize your advisor to work for you.
Select an experienced M&A professional in whom you have confidence – one that believes in you and your company, understands your sector and knows the players. By giving them an exclusive listing you ensure they have the proper incentive to market your company and represent you aggressively.
5. Be Transparent Upfront to Avoid Bad Surprises – Bad surprises derail deals.
Nothing can de-rail negotiations faster than unexpected surprises. With up-front disclosure, your M&A professional can help you package negative information more effectively, reducing its impact on your company’s market value. They will also help in laying out your company’s business profile in a comprehensive but clear manner. Good information packets reduce uncertainty and allow you to focus on only serious buyers.
Expiry of a key contract, lack of non-compete clauses for mid-level management employees, recent uptick in staff attrition rates.
6. Create a Market for Your Company – A competitive bidding process is necessary for value discovery.
Your objective should be to deal with as many potential buyers as possible at the same time. An experienced M&A professional can introduce you to several interested buyers simultaneously. With several buyers at the table, your leverage, as well as your ultimate selling price, will increase dramatically. This is a key area where an advisor by creating a competitive process can bring about valuation improvements that pay for any advisory fees many times over.
7. Be Realistic – Do not overprice your company, it will drive away buyers.
Buyers ignore overpriced companies and tend to opt out of the bidding process. This affects the sale price because your advisor is not able to create a deep market.
8. Stay Focused on Your Business – Do what you do best.
Stay focused on operating your business. Do not let selling your business impact it’s financial performance. A sudden drop in sales or EBITDA can negatively impact the value of your company once a buyer is found.
9. Screen Buyers Carefully – Know who you just talked to.
Only buyers that put their offers in writing and are financially qualified are worth your consideration. Be wary of that phone call from someone claiming to be a buyer. They could just be a competitor trying to sniff out whether you are up for sale. In general, refer buyer enquiries to your advisor as they are best qualified to assess the credibility of the buyer and their offer. Never engage in an active unscripted sale call with an opportunistic buyer. You may end up giving away information unwittingly that will harm your negotiation position. Take down their information and refer it to your advisor.
10.Consider the First Offer Very Carefully – All offers are welcome.
Each offer should be considered on its own merits. Remember, the first offer is no worse than the last offer just because you received it first. Your M&A professional can give you a hand deciding which offer is “right” for you.
11.Remain Flexible – Negotiate higher values through deal structure.
There is more than one way to structure a successful sale. Consider all offers. Work with your M&A advisor to create structures that work for all parties. If you believe your firm is worth more than is being offered, be open to negotiating an earn-out structure. Look at the full packet including not just valuation and future earn-outs, but also any residual control, transition terms, opportunities to start another role or career etc.
12.Trust Your Gut – It must feel right to you.
Trust the business judgment you used to build our business. Rely on your lawyer, accountant, and M&A professional for advice, but at the end of the day, make the decision that feels right for you.