Benchmark International Logo Blog Mergers and Acquisitions

Archives

What Does Benchmark International Tell Clients in Terms of Timing Expectations?

Our seller clients know that we see quite a few offers come through every week, month, and year and they expect us to provide our input on the timeframes that are “market.” As this is a buyer-seller neutral point and a strong set of mutual expectations is productive to achieving a closing, we want to give you an idea as to what is happening on our side of the table.

Nobody is getting deals closed in less than 90 days.

Even well-funded, experienced buyers seem to require 90 to 120 days get from letter of intent (LOI) execution to close in the middle and lower-middle markets. 

A request for more than 120 days is exorbitant.

A third of a year is a long time to be off the market for an owner who is committed to selling their business.When the time comes, there may well be good reason to extend exclusivity but we know that our clients more often than not regret any grant of 120 days or thereabouts. We can work with them to set up specific grounds for extending exclusivity beyond 90 days where a situation warrants it, but blanket grants of 120 days, or even 90 days with a 30-day automatic extension, are something we highly discourage our clients from accepting.

Diligence should start quickly.

We encourage acquirers to use the offer letter to inform the seller about diligence timings, especially when the initial diligence list will be sent and, if possible, when the initial diligence visit will start. All too often, we see LOIs signed followed by a long pause in activity and that drastically alters our clients’ attitudes toward the buyer and the offer. We encourage or clients to have this expectation set at the time of signing and expect that there will not be a pause but rather an aggressive start, even if that start only covers a portion of the scope of the overall diligence effort. When this happens, we see diligence lists arriving within a week of signing and the first onsite (or the next face-to-face meeting) within three weeks of signing.  

 

Ready to explore your exit and growth options?

 

First drafts do not wait until the diligence is complete.

We understand that acquirers may not want to incur the cost of engaging counsel based solely on the information in the Confidential Information Memorandum and a meeting or two. But we also understand that waiting two months to engage counsel and get first drafts out does not lead to a high close rate. We all know that drafts can be sent “pending finalization of due diligence.” Our successful deal closings have the first drafts coming out within a month of LOI signing. Our clients know that if they have not seen a draft by then, the deal is not likely to close.  

The seller can really mess up the timeline.

Failure to provide prompt and complete responses to diligence requests, abnormal reservation of disclosure of “sensitive” issues until later in the process, going on vacation, or simply the lack of organized files are all things we have discussed with our clients prior to going to market (and again when the LOIs start to arrive). They know that they can be the problem when it comes to timing. 

But if the seller does not mess up the timing…

Our clients know that time kills all deals. And they know that if they have been prompt and thorough, and the LOI signing date is approaching triple-digit days in the rearview mirror, things are not going well. Our statistics show that few deals die in the first 100 days after signing and few deals close more than 100 days after signing. This is something we share with our clients—both to set their expectations and to motivate them to be prompt and complete. 

Questions should be responded to within three business days.

We instruct our clients that deals require momentum to close. Precisely when they are most exhausted by the process is when they must reply in an even more expedient manner. Being realistic, we feel that the seller owes the buyer responses to every question within three business days, even if the response is, “We are working on it. It’s been a bit difficult to get our hands on that data.” Similarly, we believe the acquirer should respond to the seller’s questions, and send their follow up questions, within three business days. Allowing sellers to feel that anything that has not yielded a follow up within those three days has a “soft close” around it and goes an immeasurable distance in keeping sellers motivated, focused, and responsive.  

READ MORE >>

Selling Your Business: Expectations vs. Reality

When business owners begin the process of selling their business, they may have expectations about the sale process. These expectations can be based on what they have read, what their friends have told them, and what their own needs are. However, the reality of selling a business can be very different from the expectations.

Timing

Sellers tend to think that a buyer will appear at their doorstep ready to transact a deal when, in reality, that is not the case. The sale of a business is a very time-consuming process. M&A transactions can take anywhere from 6 months to a few years to complete, pulling a seller away from the company, which can affect the financial performance and valuation of the business. Hiring an M&A advisor can help take some of the time burdens off of the seller.

Buyers

In our experience, it never surprises us who the buyer is at the end of the day. However, many sellers believe that their perfect buyer is international or a larger company. Again, this is not the reality of it. The ideal buyer may be right down the street or even a member of the seller's management team. When considering selling a business, a business owner needs to seek an advisor or sale process which will provide them with options when it comes to buyers. Not only does this drive up valuations, but it also allows the seller to choose the buyer that is the best fit for their company.

 

Ready to explore your exit and growth options?

Business Condition

Sellers often assume that their business needs to be in the perfect shape to sell it. Sellers will typically share that they want their business to show year over year growth or a more diversified customer base. While these changes might make the business more attractive to the market, buyers buy companies for different reasons. For example, if a buyer is seeking to acquire a company to gain a relationship with a particular company, then that buyer will see a concentrated customer base as a good thing. Also, sellers will work hard to groom their business and miss out on opportunities within the open market. They work for years to grow their business, only to have the market shift and have their business not gain any additional value. The best tie to sell a business is now. We understand what's going on in the market, both from a micro and macro level, and we are not trying to predict the future.


Answer to Questions

The sale process can be very nerve-racking for sellers because of the unknowns. Sellers often expect their advisors and or buyer will be able to answer all of their questions. However, this is not the case. The sale process is just that, a process. Business owners need to go through the process to discover all the answers to their questions. Buyers are eager to get sellers comfortable with deals, integrations, and any other areas of concern for sellers. An M&A Advisor will be able to guide sellers on when they should have answers to their questions. If the answers are unknown, the M&A advisor can help guide the seller to provide comfort based on the advisor's experience.


Deal Structure

A lot of sellers assume that the majority of deals are structured as all cash transactions. All cash transactions mean when the sale closes, the seller will receive his or her money, and the buyer gets the key to the operations, allowing the seller to leave immediately. However, this scenario is a rare occurrence. Typically, a seller is required to remain with the company for 3-5 years to help with transitioning the business. Sellers in lower middle market deals tend to be critical to their company because processes are rarely formalized, and the relationships that sellers hold are key. Given the time frame for a transaction, the buyer will want to incentivize the seller to remain motivated post-closing. To achieve this goal, the buyer will want to structure the deal so that the seller has an interest in the smooth transfer and future success of the business.

 

Author
Kendall Stafford  
Managing Partner
Benchmark International

T: +1 512 347 2000
E: Stafford@benchmarkcorporate.com

 

READ MORE >>
1

Subscribe to Email Updates

Recent Posts

Follow Us on Twitter