The decision to sell or retain a business is a question pondered by many business owners. Selling a business is a momentous decision and involves critical analysis and contemplation. Click here to read a related article that provides insight regarding the decision.
The time required to market and sell a business varies significantly. In general, it takes from 3 to 18 months to complete a business sale, with the most common timeframe between 6 and 12 months.
A variety of factors, including: market conditions; desired transaction structure; availability of financing; sales trends; available competing opportunities; business size and cooperation of professionals supporting the transaction greatly influence how long it will take.
Confidentiality agreements, also referred to as NDA (non-disclosure agreements), are crucial documents to have executed by a potential acquirer prior to entering into transactional discussions and exchanging sensitive information. These agreements serve as deterrents to the disclosure of sensitive information, but should not be viewed as an absolute assurance that confidentiality will be protected. The best way to protect confidentiality throughout the process is to work with a qualified business intermediary who is experienced in managing the flow of information from seller to buyer. This allows you to remain at arms length from the initial point of contact and shields the most sensitive information until it is absolutely required. A professional business intermediary is well versed with the various techniques utilized to maximize confidentiality throughout the business sale process so your employees, competitors, customers and vendors do not become aware of a pending sale of the business.
Sun M&A provides expert merger and acquisition representation, while maintaining a competitive success based fee structure that aligns its financial goals with those of the client. We are paid for performance and are compensated after achieving the desired results for our client. The incremental purchase price that we can obtain through successfully managing the sale process significantly exceeds our fee for service.
The fee structure will vary depending upon the size of a transaction.
There is an adage in the M&A world that when there is one potential acquirer the buyer is in control, but when there are multiple potential buyers the seller is in control.
Having multiple available options will maximize the chance of negotiating a sale that meets your objectives, while making you less dependent on any one potential acquirer. Working with an intermediary better enables a seller to actively negotiate with numerous buyers independently. The existence of a fall back position avoids starting the process over should a deal fall through for any reason.
This question is very difficult to answer without knowing the qualifications and background of the acquirer. In general, the more familiar the buyer is with the industry or the required skills sets, the less dependent he or she is on the former owner.
There are two key areas that must be considered in a transition period. The first involves the time required for a new owner to absorb the majority of the operational aspects of the business. The second involves the time and effort required to transition key relationships with customers, vendors and employees. Most transition periods range from six months to one year. It is common for the former owner to start the transition period on a full-time basis and phase into a part-time role.
Should I alert any of my employees that I am involved in the selling process?
It is critical to protect confidentiality when selling a business. Until such time as the transaction is at or near completion, only the parties that need to know should be aware of your intent to pursue a sale. Sun M&A will work with you to insure that this sensitive area is managed properly.
Sharing this information with employees is likely to generate job security concerns. The reality is that human resources, infrastructure, and continuity are key factors of the purchase and the majority of business acquirers retain most of the employees after closing. Once employees are introduced to the new acquirer and learn of their operational intentions (i.e. to grow the business, add employees, modernize the facility, etc.) most of the initial concerns disappear.
Certain employees may need to be brought "into the loop" at an earlier stage if they play a key role and their input will be critical in the business sale process. For example, a CFO, Bookkeeper or Controller typically has access to key financial information. A key operational person may need to meet with a buyer to discuss or assure their desire to remain with the company into the future. Often these critical employees will be financially incentivized with equity or bonus plans and/or offered long-term employment contracts for the benefit of all parties.
To optimize the sale process, it is critical to create a professional presentation of the business. Sun M&A prepares a comprehensive, objective and articulate prospectus of the Company that positions the business in the best and most accurate light.
A strategic acquirer is a company that is looking to grow by way of acquisition. Typically a strategic buyer looks to capitalize on the available synergies with the acquired company, such as eliminating duplicated overhead expenses, taking advantage of purchasing discounts and efficiencies of scale, gaining access to new markets, etc. Given the "strategic" nature of their interest, it is strongly recommended that financial information be presented with these potential synergies in mind.
For example, it may be anticipated that the two companies will eventually consolidate operations into one facility. It follows that the acquired company's facility expenses (i.e. rent, real estate taxes, utilities, property maintenance expenses, etc.) will be non-recurring to an acquirer. It is also likely that a host of other expenses would be redundant in a combined entity. These types of expenses should be "recast" and presented to a buyer as redundant expenses that will not exist after closing. Sun M&A is very experienced in transactions involving strategic acquirers and we work with you to identifying these "add-backs" or cost synergies early in the process to help the buyer recognize the true profit potential of making the acquisition. This leads to maximizing the value of the firm.
Any task or project done infrequently yields certain challenges due to lack of experience. This is especially true in the context of selling a business.
When business owners misquote a customer job or make a mistake during the normal course of business, they often lose money. However, when there are hundreds of transactions in the course of a year, the financial impact of a few mistakes is not disastrous. These errors can also be used as a learning experience in order to prevent the same mistake in the future. When selling a business, however, a seller cannot afford to scale the learning curve when the stakes are much higher. The sale of a company is typically a once in a lifetime event for a business owner and a single mistake in presentation or negotiation can cost hundreds of thousands of dollars.
Working with a qualified professional intermediary will enable you to avoid making mistakes that result from lack of experience with the process. You can't afford to experience a learning curve during the sale of your most valuable asset.
It is important to have a comfort level and work with an intermediary whom you can trust to achieve your sale objectives. A professional firm should provide a high level of attention, professionalism, service and expertise to your assignment regardless of the size of the transaction. A reputable M&A firm will be able to provide you with qualified references from past seller clients, attorneys, accountants, bankers, etc...
A professional firm will provide unparalleled merger and acquisition representation, while maintaining a competitive success based fee structure that aligns their financial goals with those of the client business owner. Please click here to see what differentiates Sun Mergers and Acquisitions.
The sale of a business involves many elements of financial opportunity to the Principal; the purchase price is only one component of the overall goal. When representing a client, our understanding of all of the available options maximizes the total financial yield to a seller.
Sun M&A takes into account all of the elements of the financial transaction including: yields from a stock sale versus asset sale, amount of initial investment, terms and interest rate on promissory notes, liabilities to be assumed by the acquirer, transfer and negotiation of leases, personal guarantees, employment contracts, consulting agreements, non-compete agreements, current assets to be retained by the seller, earn-outs, stock ownership retention, continuation of perks and fringe benefits (i.e. health insurance), purchase price allocation and other pertinent details. The total financial package goes well beyond the base purchase price.
Three years of historical financial information should be sufficient for potential acquirers to formulate an opinion of value and a comfort level with the business. In addition to historical information, year-to-date or interim financial statements are required. It may be advantageous to prepare a projected income statement for the upcoming period as well. You should also be prepared to discuss any dramatic swings (up or down) in sales, profit margins or expenses.
Proper interpretation and presentation of financial information is a crucial step in the selling process. Financial statements are typically prepared for tax purposes, not for business sale purposes, and do not accurately reflect the true profitability and potential earnings capability of a business. Acquirers must be able to “read between the lines” of the financial statements and tax returns to appreciate the cash flow being generated for the owner(s). Failure to properly present true “re-cast earnings” reduces the perceived value of a company.