Today’s Wall Street Journal has a good article about being prepared to sell your private company.  It highlights a couple of issues that we frequently encounter with prospective clients for our services.

1.    Not separating yourself from the business.  In order for owners to sell and retire, there must be a management team that can run the company after you’re gone.  This is the #1 shortcoming we see most often.  It’s is never too early to begin hiring and training the team that will take over for you.  Otherwise the company owns you, not the other way around.

2.    Incorrectly valuing the business.  Your company isn’t worth exactly how much you need to retire, it isn’t worth the same as your cousin sold his company for in 2007, and it’s not worthy it’s “book value”.  If you ask too little, you’ll leave money on the table, if you ask too much, you’ll never complete the sale.  Ask an investment banker to give you an idea of what is a realistic value for you company before you start, and use an investment banker to manage a process designed to wring the best price from a competitive process.

3.    Falling for the “too good to pass up offer”.  We often have owners become clients after a failed exercise with a buyer that made a very attractive offer, only to try to “haircut” the seller right before closing.  Make sure you are talking to qualified, serious buyers and you understand that the price is fair and the buyer has the resources to close the deal.  The highest price is no price if the deal can’t get done.

To read the Wall Street Journal article, click here.

Posted by John Hammett.

Part 5

This is my last in a series of posts discussing reasons why hiring an investment banker when selling a business can make good economic sense.  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.

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 #5

PROCESS AND PROFESSIONALISM.  Good M&A firms manage the sale process systematically.  They have a schedule for documentation, early indications of value, management meetings, letter of intent, due diligence, and closing.  The advisor will keep the company on schedule and will use the schedule to manage the relationships with the buyers. 

Experienced buyers appreciate the professionalism of an advisor-managed transaction.  Buyers can spend up to $200,000 to close a deal.  Having an investment banker representing the owner means that the buyers’ time and money will be well spent and the process will go smoothly.

BOTTOM LINE.  Company owners are resourceful and committed individuals.  There is no question that most company owners can manage the sale of their company to a closing.  The question is whether they can commit the time and whether their lack of experience will affect the price and terms. 

Working with a professional dealmaker can significantly improve the overall valuation and the terms of the transaction.  In addition, the involvement of an experienced dealmaker will significantly improve the likelihood of a successful closing.

Download the 10 Biggest Mistakes Sellers Make.

Posted by John Hammett.

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 »