InSight

Exit and Growth Strategies for Middle Market Businesses

Selling your business is not an event… It is a strategic Process – PART I

By Terry Fick | Nov 13, 2018

PART I

Remember,

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

WE START WITH A FEW GOLDEN RULES

  1. Always establish a sense, or better yet, a reality of competition for your company.
  2. Never, unless… No Never, give a prospect a price or tell them what you think the company is worth.
    1. Giving a price only sets a ceiling from which to negotiate downward.
    2. Terms are as important as price, and giving a price ignores this all-important element.
    3. Even in negotiations, until the very end, your response to a formal or informal offer is “I don’t think that offer will get you to the pole position…”
    4. At the very end you may have to counter with a definite value and set of terms.

First, let us define the possible responses to unsolicited offers to buy your company by type of buyer.

Individuals

SELLING TO INDIVIDUALS? Unless your company is so small no private equity group (PEG) or corporation buyer would be interested, do not even talk to them.

Corporate Buyers

  • There are direct competitors and those that do not butt heads with you. Non-competitors are better buyers than direct competitors.
  • Ask them why they are interested. If they have a good reason, they may well be your best bet.
  • They usually want 100% and often allow (or even want) you to leave soon after a sale.
  • Don’t assume they are well funded enough to make this acquisition. Ask the right questions.

Private Equity (PEGs)

  • PEGs come in many flavors and can be very good buyers for those that would like to stay and continue to run the business… on their dime. A large majority of them are “The good guys” and can make great partners going forward. Their success rate for growing companies is outstanding.
  • A great vehicle that allows you to take almost all your chips off the table, eliminate your debt and still manage and grow your company.
  • They allow you to take, say, 90% of the true value of your business out in cash, but keep 20-25% of the equity for your second bite of the apple.
  • A good vehicle to allow you to pass on some equity to your management team or kids.
  • Make sure they are funded. There are thousands of PEGs out there that have millions and billions of cash. Be careful of relying on those that must raise the money after you committing to a sale.

Regardless of the type(s) of company you seek, there are three different paths to take:

  1. One is to be reactive and consider each contact one at a time, starting with the one that looks most likely.
  2. Another is to reach back out to all of them at once, and once you have culled the herd, open dialogues with multiple options at the same time until you eliminate all but one.
  3. The third is to let a professional quarterback the process of talking to one, several or even reaching out to more.

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


One Response to “Selling your business is not an event… It is a strategic Process – PART I”

  1. Louis Herman says:

    If your company is running good so it’s not good decision to sell it because you grow more your company and open another business

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