InSight

Exit and Growth Strategies for Middle Market Businesses

Selling Your Business Is Not An Event… It Is A Strategic Process – Part II

By Terry Fick | Nov 14, 2018

Part II

Remember,

Selling your business is not an event… It is a strategic Process.

Like most successful outcomes, selling your company starts with the right preparation!

  • Set your expectations of value.
  • Prepare an NDA so it is ready at the appropriate step below.
  • Set up a virtual data room and populate it with the basic information anyone will need to see. Since you may present your information to multiple parties, this eliminates a duplication of efforts, creates an air of professionalism and gives the impression you are, or plan to, talk to more than one party. Your Attorney or Investment Banker will manage this if you prefer.
  • Look at your company through the eyes of a buyer. Ask yourself what aspects of this company would be attractive to you and what aspects would give you pause. Plan to accentuate the positives and minimize any negatives.
  • Develop a growth plan. Always sell the Future!

Now, prepare some more!

Are you ready to answer the typical questions they will ask?

  • Are your financial reports up to a buyer’s standards? If you aren’t sure what is expected, ask a professional.
  • Can you answer questions about your market position, your customer concentration, your competition (and how you stack up), which of your products are the most profitable, what are your strengths in the Marketplace, What role you want after a transaction, etc.?
  • Who would take your place if you are ready to retire?
  • Prepare a supportable projection for 3-5 years.
  • The list goes on, but a little preparation will give you a significant advantage.

Dealing with buy-side Brokers

They may or may not be credible.

  • Ask them to name their client
    • If they will not, politely tell them you are moving on.
    • Caveat: If they say they will if you give them some info, tell them your revenues and what you sell to who. Period.
  •  Only talk directly with their buyer. If they want the broker on the phone, O.K.
  • Do not give the broker any more information until the buyer signs your NDA and says the broker is covered.
  • DO NOT allow the broker to introduce you to more buyers Be adamant!

Talking with the prospective Buyer

Once you are talking directly to the decision maker at a buyer, then pay attention. Let them know you are considering your options and are discussing those options with your professionals. This gives them the impression they may have competition. Not being objective, we suggest you engage an Investment Banker to either work on just one prospective deal, or to assist you on any contact and create real competition. Qualify that buyer by determining if he can make an acquisition this size (without giving up your desired value.) Pose questions like,

  • What do know about my company?
  • Why are you interested in my company?
  • What other acquisitions have you made? Be industry specific with a PEG.

Now it is time to get your NDA signed before giving any more information

Creating Competition

  • Now, hopefully you still have more than one viable dog in the hunt and you have established the appropriate sense of competition. As you move forward, note the following:
    • Always let the elephant in the room be “other buyers”, but never name those buyers.
    • Never reveal specifically what other offers or value discussions may be.
    • Never let a buyer tell you that you should only be talking to him. It is perfectly ethical and appropriate to talk to multiple parties at once prior to your signing an LOI.

Hiring Professionals

It is obviously hard for me to stay objective when discussing this option because it involves employing an intermediary. Some form of an M&A professional whether it is an Investment Banker, a Business Broker or an M&A attorney. An Investment Banker can manage your process whether you choose to speak with one or multiple prospects and he will be able to bring even more buyers to the table.
An Investment Banker will:

  • Give you a realistic valuation
  • Respond and cull the herd without those parties knowing you might consider a sale.
  • Create a credible environment of competition
  • Be in a better position to look at your business through the eyes of the buyer.
  • Bring “Been there and Done that” expertise to the table
  • Save you and your team countless hours
  • Bring even more valid buyers to the table
  • Negotiate as a third party, preserving the relationship with the buyer
  • SELL your company so you don’t have to sound braggadocios.

Moving Forward

  • With their NDA in hand, have another informal phone call and answer most of their questions. The caveat is making sure you do not give specific customer or employee names. You can also avoid giving up any IP.
  • Let them know you have a data room prepared and that many of their answers will be there.
  • Be prepared to give up fairly detailed financial information, customer information (no names), growth plans, management staff, etc.
  • Talk about his plans for you. Would he want you to stay or phase out?
  • Now you give him access to the data room and give him some time to review that information before moving forward.

To be continued in Part III of this three-part post.


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