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You've finally decided to sell the business you worked so hard for so many years to create. Now what? While it may seem straightforward - determine a price, shop it around, collect your payment - the true nature of the transaction is much more detailed and requires considerable expertise and finesse to navigate through the many steps of the process.
Before moving forward, it helps to understand the various stages of the sale. Knowledge is key, and we believe an informed seller is the best seller. Once you have a handle on the many moving parts of the transaction process you'll be better prepared to pull the trigger and move forward.
We've highlighted a few key steps of the process:
Selling your business is a long and complex process that typically takes over a year to complete. Trying to guide yourself through the process can have dire implications for your return on the sale.
An experienced sell‐side mergers and acquisitions (M&A) adviser will understand your business and will add tangible value to it during the sale process. The right M&A advisor will bring fresh outside perspective and professional expertise on timing, documentation, your balance sheet, top level executives & employees and the outside perception of your business. As importantly, he or she will be able to give you a realistic value of your business and help identify any critical matters needing attention.
And now... the pressing questions. Have you handled your taxes correctly? Are there any cost-cutting measures you can employ to raise the bottom line before the sale? What are your expectations for the sale? What are your exit strategy options? Will you have any future role at the company - and do you want any?
A seasoned M&A adviser will ask you the critical questions necessary to unearth these answers and help you understand selling requirements, tax implications and strategic timing of the sale. They will also uncover any issues that need to be resolved before taking the company to market.
Now, it's time to get real. What is a realistic valuation range for your company? Is this in line with your expectations? If your advisor arrives at a value for your business that is out of line with your preconceived expectations, it's time to hit pause. Is the timing wrong? Are your expectations unrealistic? Have you presented all of the necessary data? An M&A professional is skilled at bridging the gap between buyers and sellers - but taking a company to market with unrealistic value expectations is a sure path to derailing a deal on the table.
Pre-Market enhancements can often, but not always, bridge the gap for sellers. An advisor or advisory firm can review your company's strategic and financial condition and make suggestions on implementing changes over a 6-12 month period to raise the value and/or make it a more desirable buy. These are subtle changes that can typically be completed in a reasonably short time.
Even if you are eager to sell and hoping to make the process quick, a few minor adjustments can add significant value before going to market. A knowledgable advisor with relevant experience will prove invaluable here.
Organization and documentation are key for a transaction of this scale. The preparation of your company's data, presentation materials and financials directly reflects on you, the seller. A well‐packaged business summary increases a buyer confidence and comfort. These are key qualities that often lead to a successful sale.
You've spent years establishing your brand recognition and company messaging. The sale of your business should inspire you to showcase your company's hard-earned value with carefully considered presentation materials and organized corporate documentation.
The middle-market offers a wide range of diverse potential buyers. While it is often assumed the buyer will be someone already known to the seller, this is often not the case. An established M&A advisor truly shows his worth at this juncture of the process, accessing his resources to bring a diverse and qualified set of potential buyers to the process.
A review of competitors, customers, private equity firms and strategic players are all viable options for suitable buyers. The vetting process is exhaustive and should not be rushed, as this is one of the more time and resource-intensive aspects of the transaction process. Success here greatly determines the final outcome of the sale.
In general, multiple qualified buyers result in a better financial outcome. Competition in the sale process typically quickens the speed of the sale and increases the transaction speed, but it requires great skill on the part of the M&A advisor to handled each buyer carefully, respectfully, and professionally.
Deal fatigue is real and must be avoided at all costs. Maintaining active interest from all qualified buyers is important, as is making sure none of them feel as if they are just one of many players in a too-large competition. Your M&A advisor's expertise in handling these sensitive conversations is exactly why you will be grateful to have chosen them to navigate this part of the process.
The purchase price is only one of many considerations for the sale of your business. What about professional considerations for you and your management team? Have you considered stock sale versus asset sale? Is an earn‐out an option? What will the financing terms be and how will interest rate play a role? What liabilities will be assumed by the buyer? How will you handle employment contracts, noncompete agreements and relocation? What current assets will be retained by the seller? How will stock ownership and equity options packages be handled?
A skilled and experienced advisor will already be working with you you to define and answer challenging questions and any of your lingering concerns.
Once the papers are signed and the deal is done, there are still details to be overseen. The transition period generally consists of cooperation on the part of buyer and seller to ensure a smooth transfer of power. An expressed willingness to aid in this process is desirable when buyers are evaluating the deal. Transferring customer relationships, establishing management roles, market dynamics and other proprietary information will help the business continue on successfully and smoothly.
Is this a comprehensive list? Far from it. It's easy for business owners to feel overwhelmed by the minutiae involved in selling a company. For this reason, we believe M&A advisors are crucial for experiencing a successful and smooth sale process.
As you can see from the list of concerns above, money is only one of many considerations to factor into the transaction. No two companies are alike, and neither are any two transactions. Handling the sale of your business with individual care is an area win which Kratos Capital excels. Make sure your M&A advisor can commit to the same personal attention we give to each of our clients. It will make all the difference as you dive into the process of a sale and look towards what the future holds for you and your business.
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