Part 4

Entrepreneurs are successful because they are versatile and are unafraid to take on the challenge of doing what needs to be done at each stage in the life cycle of their company.  So it’s natural for company owners to want to take on the task of selling their company as one more personal challenge that they can do as well as an outside expert.

As I have mentioned in my last few blog posts, some company owners chose to handle the process of selling their company themselves.  Some of these owners successfully sell their company for a high valuation.  Many of them successfully sell their company, but for a lower price or on weaker terms than they may have deserved.  And too many of them aren’t successful at selling at all.

There are a number of reasons why smart owners hire investment bankers to manage the process and represent their interests in the sale of their companies.  An outside M&A advisor stays focused on the deal while the owner stays focused on running the company’s day-to-day operations.  An investment banker also provides a level of experience and sophistication when dealing with potential buyers.

Reason #4

MARKET VALUE & TERMS.  Many companies are sold to buyers that make many acquisitions.  These experienced buyers are accustomed to the standard valuations, terms, and conditions in the marketplace.  An experienced advisor can tell the seller what is expected in the marketplace and what provisions the buyer is asking for that are beyond the limits of accepted practice.  The investment banker will protect the seller’s interests.

The contracts that document the sale of the company add up to more than 100 pages.  The price is in one place on one page of those documents.  The remaining terms and conditions are vitally important to the seller.  An experienced dealmaker can advise on what is acceptable and what provisions may be detrimental to the seller.  The end result is a better sale on better terms.

Posted by John Hammett.

Part 3

Most private company owners are used to doing things for themselves.  Many founded the companies that they run, and they took care of sales, operations, and financing alone before their company grew large enough to have an organization to manage those functional areas.  Entrepreneurs are successful because they are versatile and are unafraid to take on the challenge of doing what needs to be done at each stage in the life cycle of their company.  So it’s natural for company owners to want to take on the task of selling their company as one more personal challenge that they can do as well as an outside expert.

As I have mentioned in my last few blog posts, some company owners chose to handle the process of selling their company themselves.  Some of these owners successfully sell their company for a high valuation.  Many of them successfully sell their company, but for a lower price or on weaker terms than they may have deserved.  And too many of them aren’t successful at selling at all.

Company owners hire investment bankers to manage the process and represent their interests in the sale of their companies.  There are a number of reasons why smart owners pay investment banking fees for these services.

Reason #3

PERSONAL DYNAMICS.  The initial contact with a potential buyer sets the stage for subsequent negotiations.  An owner who contacts buyers directly may seem weak or desperate to sell.  Alternatively, too casual an approach can lead buyers to think that the seller is not serious about selling the company.

Having an experienced dealmaker make the initial contact sends a message of sophistication and seriousness on the part of the seller.  Furthermore, a third-party can maintain the confidentiality of the seller until an interest has been established and initial buyer qualifications are validated.  This protects the seller’s confidentiality in the marketplace.

Posted by John Hammett.

Part 2

As I mentioned in my last blog post, some company owners choose to handle the process of selling their company themselves.  Some of these owners successfully sell their company for a high valuation.  Many of them successfully sell their company, but for a lower price or on weaker terms than they may have deserved.  And too many of them aren’t successful at selling at all.

Company owners hire investment bankers to manage the process and represent their interests in the sale of their companies.  There are a number of reasons why smart owners pay investment banking fees for these services.  The first reason investment bankers are hired to sell a company is it allows the business owner to focus on the day to day operation of the company.

Reason #2 – The Buyers

Owners tend to think of buyers that they know.  They think of their close competitors and other companies they see in the industry.  A high-value sale requires finding buyers that have three characteristics: (1) they can realize a higher value from the company than the owner can realize today; (2) they have the cash and other resources to close a deal at a fair value; and (3) they are experienced at closing deals.  Just because companies come immediately to mind, or are convenient, does not mean that they are the best buyers.

A good investment banker will research and contact 300 to 400 potential buyers to find several that are qualified and ready to buy.   The advisor has access to research and to personal connections that will be used to identify a bigger pool of qualified buyers than an owner can readily access.

Posted by John Hammett.

Part One

Most private company owners are used to doing things for themselves.  Many founded the companies that they run, and they took care of sales, operations, and financing alone before their company grew large enough to have an organization to manage those functional areas.  Entrepreneurs are successful because they are versatile and are unafraid to take on the challenge of doing what needs to be done at each stage in the life cycle of their company.  So it’s natural for company owners to want to take on the task of selling their company as one more personal challenge that they can do as well as an outside expert.

As a result, some company owners choose to handle the process of selling their company themselves.  Some of these owners successfully sell their company for a high valuation.  Many of them successfully sell their company, but for a lower price or on weaker terms than they may have deserved.  And too many of them aren’t successful at selling at all.

Company owners hire investment bankers to manage the process and represent their interests in the sale of their companies.  There are a number of reasons why smart owners pay investment banking fees for these services. Read more »

There are five deal factors so significant that they don’t just affect price, they affect the fundamental ability to sell your company and complete a deal.  For this reason, these are considered Deal Killers.   If a company has one or more of these attributes, it will be difficult to find any buyer.  Any buyer will very likely discount the value to accommodate the risk that these Deal Killers bring.

My first three blog posts in this series discussed Deal Killer #1, No Management Depth and Deal Killer # 2, Customer Concentration and Deal Killer #3, Inconsistent Financials.  This post will focus on another problem some sellers may face…environmental concerns.

Deal Killer #4 – The Environmental Factor Read more »

There are five deal factors so significant that they don’t just affect price, they affect the fundamental ability to sell your company and complete a deal.  For this reason, these are considered Deal Killers.   If a company has one or more of these attributes, it will be difficult to find any buyer.  Any buyer will very likely discount the value to accommodate the risk that these Deal Killers bring.

My first two blog posts in this series discussed Deal Killer #1  No Management Depth and Deal Killer #2 Customer Concentration.  This post will focus on a current problem for many companies…financial inconsistency.

Deal Killer #3 – Financial Inconsistency Read more »

There are five deal factors so significant that they don’t just affect price, they affect the fundamental ability to sell your company and complete a deal.  For this reason, these are considered Deal Killers.   If a company has one or more of these attributes, it will be difficult to find any buyer.  Any buyer will very likely discount the value to accommodate the risk that these Deal Killers bring.

My first blog post in this series discussed Deal Killer #1, No Management Depth.  The second deal killer focuses on the lifeline of a business…its customers. Read more »

The Numbers Tell The Story

Owners who are waiting for “market conditions” or “value multiples” to improve before they take action to sell their companies are missing one of the best “seller’s market” I have seen in many years of dealmaking.

This is clearly demonstrated by the numbers on a company that we are selling right now.  Two company owners engaged us to sell the company that they started 25 years ago.  It is a good stable manufacturing company.  The company has sales of around $15 million that had been flat for the last three years, and it has Adjusted EBITDA of about $2 million. Their company is very typical of the kinds of deals that CFA represents. Read more »

Company value is a function of the buyer’s expectation of future cash flow, factored for the buyer’s perceived risk of not achieving that cash flow.  There are many factors that will affect the buyers’ perceived risk.  These include things like whether the company’s industry has good growth prospects, whether the company’s products are proprietary or commodity, and how capital intensive the business is.  The buyer’s understanding of the effects of these factors is typically negotiated as a higher or lower valuation.

However, there are five factors that are so significant that they don’t affect price: they affect the fundamental ability to sell your company and complete a deal.  For this reason, these are considered Deal Killers.   If a company has one or more of these attributes, it will be difficult to find any buyer.  Any buyer will very likely discount the value to accommodate the risk that these Deal Killers bring.

Over the course of my next five blog posts, I will be discussing the five most significant Deal Killers, along with recommended antidotes to diminish the effect of these situations on the deal.

Deal Killer #1:

NO MANAGEMENT DEPTH.   This Deal Killer is the most common, the easiest to resolve, and the one that sellers resist the most.  Nothing will kill a deal faster than the buyer’s perception that the keys to the company’s success are locked inside one individual. Read more »

The biggest issue that we have with selling a business, that drives value, is the organizational depth.  A business owner that does everything from start to finish has a much tougher time getting full value out of the business.  A buyer is going to want to see organizational depth and structure:  someone in charge of sales, someone in charge of production or the services being delivered, and a strong financial executive.  You really need to start working today to remove those responsibilities from yourself so that you have a fully capable organization.

Watch the full video interview.

Subscribe to the Capital Ideas Newsletter.

Posted by John Hammett.