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.
A Confidentiality agreement, also referred to as an NDA (Non-Disclosure Agreement), is a crucial document to have approved by a potential acquirer prior to entering transactional discussions and exchanging sensitive information. This agreement serves as a deterrent 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 M&A advisory firm who is experienced in managing the flow of information from seller to buyer. This allows you to remain at arm’s length from the initial point of contact and shields the most sensitive information until it is absolutely required. A professional M&A Advisor 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 is completely in alignment with our client’s financial goals. We are paid for performance and are compensated after achieving the desired results for our client. The incremental purchase price that we generally 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 attract and negotiate with numerous buyers independently. Ongoing discussions with multiple parties creates multiple options for our clients. This avoids being dependent on any particular party and provides significantly more negotiating leverage for our clients.
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 most 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. However, there are many situations in which the seller opts to stay with the new owner on a long-term basis.
It is critical to protect confidentiality when selling a business. Until 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 ensure that this sensitive area is managed properly.
Sharing this information with employees could potentially 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.
A seller may need or choose to bring certain employees into the inner circle 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 incentivised with equity or bonus plans and/or offered long-term employment contracts for the benefit of all parties. Including certain key employees in the process at an early stage can reduce the perceived risk of an acquirer and can lead to a more favorable presentation and transaction.
A business that is professionally packaged and presented increases an acquirer’s confidence and comfort level, thereby increasing the likelihood of a successful sale. There are many non-financial factors that need to be stressed to the buyers including name recognition, market niche, referral relationships, client retention, systems and process, management team and other intangible factors. This is a story that must be properly told to maximize value. Sun M&A prepares an in-depth review of a company’s competitive advantages and expansion opportunities to validate and defend the future earnings potential of the business, thus maximizing its attractiveness and perceived value.
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.
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.
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. Most transactions are driven by acquirers return on investment, hence 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 during a year, the financial impact of a few mistakes is not disastrous. These errors can also be used as a learning experience 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 M&A firm 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 or Boutique Investment Bank 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: tax impact of a stock sale versus an 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 gain a true understanding of the cash flow being generated. Failure to properly present true “re-cast earnings” reduces the perceived value of a company. We also work together to create financial forecasts to show the future earning potential.
There are numerous strategic buyers that are looking to expand through acquisition. We are very thorough in researching and identifying a comprehensive list of potential acquirers to pro-actively approach to determine their potential interest in acquiring your firm. We utilize our extensive network of both strategic buyers and financial buyers. We utilize proprietary and other licensed databases, in addition to numerous online resources, to create a highly targeted list of potential acquirers. We review these targets with you prior to reaching out to any parties to confirm we are in alignment with who we should and should not contact. We view this as a collaborative effort and encourage your input. We do not disclose your company name when reaching out to any parties, as this is done on a redacted basis until we have a signed NDA and confirm the financial capability and interest level.
Sun pre-qualifies potential buyers to determine their interest level and financial capability required to close a transaction. This thorough vetting and qualification process is a crucial step to prevent wasted effort and protect confidentiality.
Our continuous activity in the marketplace provides us with a clear understanding of transaction values and deal structures that are realistic and achievable. At the outset of the engagement, we would conduct a business valuation analysis as this enables you to approach the pending M&A discussions on a more informed basis. We would review the financial information together, so we can identify applicable add-backs and recasting adjustments, as well as gain a clear understanding as to the non-financial intangibles, risk factors and value drivers, to more specifically discuss valuation.
Our philosophy is that fair market value is the minimum that should be targeted in a sale. By identifying multiple strategic buyers that can realize synergistic and other intangible gains, we often achieve a transaction that far exceeds this value. Properly presenting your firm’s strengths, tangible and intangible assets, financial performance, and expansion opportunities, maximizes perceived value.