Join us for the complimentary webinar: What You Need To Know About Selling Your Business To A Strategic Buyer.READ MORE >>
For more than ten years, business owners have enjoyed a sellers’ market in the lower and middle markets. But the tide is turning. Here’s the headline: Multiples are not trending downward, buyers are slower, more cautious, and cockier, and deals are taking longer.
The best analogy is that we have been on a roller coaster, and we no longer hear the clicking sound as we go up, but we’ve also not started to feel anything in our stomachs. It’s almost as if we are paused, and we feel certain that we know what is coming next. Buyers feel as if they’ve been bullied for the last decade by aspirational sellers and their agents. They have pent-up resentment. Some of it is starting to show.
When you are about to sell a business, you have a few options regarding how to do it, and whose expertise to enlist. Many people confuse M&A advisors with business brokers. While there are some similarities, they are not one and the same. There is actually more than one significant difference between an M&A advisor and a business broker. It is important for any business owner to understand these differences, so that it can be determined which is the best way to go about the sale of a company.READ MORE >>
If you are thinking of selling in the near future, now is the time to get to market. We are in an unprecedented time making it challenging to run a business but also to sell a business.
The M&A market is changing daily and many factors are affecting deals in 2020. We do not have a crystal ball however there are a few trends that if you are considering selling your company in 2020, then now is the time.
- This year is a presidential election year. As we begin the second half of the year, we begin to think about Q3 and Q4 2020. Buyers are actively seeking acquisitions and deals are still being completed. However, the closer we get to November, buyers will begin to focus more on the election and want to revisit their acquisition plans after the election is over. As we go into the end of the year, planning for 2021 will begin. One would anticipate that the end of the year will be quiet for the M&A market as companies, financial buyers, and others will want to see what lies ahead in 2021.
- PPP forgiveness will take place soon. Once the loans are forgiven, if the businesses have not improved their performance, we would anticipate that layoffs will continue and potentially at a higher rate than what we are currently seeing at this time. If this happens, it will continue to harm the economy as additional businesses will also fail.
- The credit market is changing daily. We are seeing lenders backing away from term sheets based on their bank’s industry exposure, small discrepancies that emerge during due diligence, and more conservative underwriting. There is talk within the market that lenders may continue to tighten their lending standards making it harder to obtain credit for acquisition. This may have a direct effect on multiples.
- While we know that the tax environment is today, we can only anticipate that long term, taxes will increase. With the various US federal initiatives related to COVID-19 and the economic decline, we suspect that the US will have to raise taxes to overcome the growing debt burden that has been created in 2020.
All these factors contribute to the M&A market, valuations, and deal structures. The best time to sell is now.
You have poured your life into building your business. Selling it is not only a very emotional process, but it can also be a monumental task that involves many intricacies. Careful planning and preparation before a merger or acquisition can translate into your efforts being rewarded with a high value deal. While there is quite a bit that can go into preparation, the following seven considerations are key to arriving at a successful deal in the end.
1. Protect What’s Yours
Intellectual property can be a company’s most significant asset. It differentiates you from your competition, is an important marketing tool, and can provide revenue through licensing agreements. It is also a major driver of value in a merger or acquisition. Any intellectual property that belongs to your business (proprietary technologies, copyrights, patents, design rights, and trademarks) must be legally protected. Enlist your legal counsel to ensure that all the proper paperwork is filed and current. If you are considering a cross-border transaction, you will want to make sure the property is protected on an international level as well as a local level, as different countries have different laws and requirements.
2. Get Your Finances in Order
It’s never a good look when a prospective acquirer asks for financial documentation and you are scrambling to put it together. This can also delay the process. Before taking your company to market, you will want to compile all of the proper financial and contractual records and have them organized and ready to turn over. Having your finances in order also means that you should seek to resolve any outstanding issues where possible before trying to sell. For example, if you know you have a situation you can probably resolve, getting it straightened out ahead of time can eliminate unnecessary complications during the due diligence process. The due diligence process is also going to require an audit of your assets. A buyer is going to want a complete picture of what they are acquiring. Intellectual property is an important element of due diligence but the process also includes areas such as equipment, real estate, and inventory.
3. Maintain Business as Usual
Going through the lengthy process of selling a business can certainly provide its share of distractions. No matter how easily it can be to become sidetracked or consumed in the details of the sale, now it is more important than ever that you stay focused on the daily operations of the business and ensuring that it is running at its best possible level. This includes keeping your management team focused. Deals can take time and they can also fall through. Every aspect of an M&A transaction hinges on the health of your company at every stage of the game and you need to make sure the business does not lose any value.
4. Think Like a Buyer
As a seller, you obviously don’t want to leave money on the table. That is why it can be helpful that you look at your business from the perspective of a buyer. This will help you avoid being fixated on a sale price the whole time. Think about why they would want to buy your business and what opportunities it affords them in the future. If you can improve your business and develop it as a strategic asset before you try to sell, you can increase its value and get more money.
5. Predetermine Your Role
Sometimes after the sale of the business the original owner executes a full exit strategy and severs all involvement with the business. You need to decide up front what is right for you. To what extent do you plan to relinquish control of the company? Do you wish to remain an employee or a member of the board? How much authority do you plan to retain? You should think these options through before going to market so that you can find a buyer that supports your intentions for the business.
6. Have a Post-Sale Plan
Consider what life will look like following the sale of your company. Think about what your financial picture will look like. How will you invest the proceeds to maintain your financial health? How much cash will you take at closing? How long should the earn-out period be? What about stock options? And don’t forget about tax liability. How much will be paid immediately and how much will be deferred? These are all important questions to ask yourself when anticipating the sale of your business.
7. Retain an M&A Expert
Selling a business is a complicated process and a seller should never go it alone. You may be an expert at your business, but chances are you aren’t an expert at selling businesses. Enlisting the partnership of a M&A experts can not only help you get a deal done smoothly but can help you get the maximum value for your company. M&A advisors know what to expect, they know how to avoid common pitfalls, and they have access to resources and experience that can be game changers for your deal. They can also help you work through some of the difficult decisions mentioned above. Of course, they come at a price, but a price that is worth it when you consider how much their involvement can increase the value of your sale and the chances of the deal being closed.
Ready to Sell?
When you are ready, so are we. Reach out to our M&A advisory experts at your convenience to talk about your options and how we can help you sell for the utmost value.READ MORE >>
Selling a company can take several months to even years, depending on factors such as the state of the business, the industry, the market, and the economy. At Benchmark International, we have created an efficient process that we use as a framework to guide any merger or acquisition from start to finish. While not every deal will follow this timeline exactly, it is what we strive to adhere to and what you can expect from the process, keeping in mind that when several parties are involved, timing depends on when they each do their part.
The 120 Days Prior to Going Live: Strategy Development & File Preparation
First, in order to determine the “go live” date (when we take the business to market) we carefully assess your needs and priorities as the business owner, the completion of audits and taxes, the harmonizing of the business’s external image, and the M&A market calendar.
In the 120 days prior to “going live” with your company, we will go through a preliminary preparation period. This period begins when you and your Benchmark Deal Team sign the engagement and we deliver a data request list to you in order to obtain the relevant information we will need to facilitate a deal. The initial delivery of these documents to us usually takes about two weeks. Then, two weeks after that, we conduct a Q&A session with you regarding the financial data to resolve any outstanding topics. This is when we dig in and do an even more thorough assessment.
A few weeks later, we have our first meeting with you for the presentation of any issues that we found, we request any additional data, and we conduct a preliminary discussion of a marketing strategy. In another 20 days, we have a second meeting to verify the completion of the harmonization of the company’s public image, finalize strategy, and recap any additional data still needed.
Then, in about three weeks, our deal team delivers drafts of the company Teaser and Confidential Information Memorandum (CIM). In the week subsequent to that, we will meet to finalize materials, we prepare market intelligence, and then we are ready to go live.
Two Months After Going Live: Solicitation of Candidates & Expression of Interest
Now that we are ready to go live, we move into the next phase of the process. We start by approaching prospective buyers. We begin obtaining non-disclosure agreements and screening candidates. Within about three weeks, our deal team delivers an interim candidate report to you, classifying candidates into three categories. We then meet to determine authorized recipients of the CIM out of the candidates delivered. Following this meeting, we deliver CIMs to a second round of prospects. You can expect us to be one month into this process when we deliver a finalized candidate report to you, which again classifies the candidates into three categories. Soon after, our team will meet with you to determine the authorized recipients of the CIM out of these candidates. Following this meeting, we deliver CIMs to a second round of invitees. By day 60, expression of interest is due from these candidates.
Two to Four Months After Going Live: Evaluation of Candidates & Offers
Now that we are two months into the process of having gone live, your Benchmark team presents the expressions of interest on behalf of prospective buyers to you. Next, you instruct us as to which candidates should be invited to bid. We then confirm each invitee’s continued interest and they are provided access to a preliminary data room.
At about three months in, letters of intent are due to us from the bidders. We revert to them with any questions raised by the letters of intent. Next, our team presents the letters of intent to you and follows up on any questions you have for the bidders. At this stage, around Day 107, we work closely with you to reevaluate the top bidders, and negotiations begin with one to three bidders. By Day 120, the letter of intent is executed and the counterparty is granted access to the complete data room.
Ready to Sell?
We’re ready to help. Contact our M&A advisory experts at Benchmark International to formulate effective strategies to grow your business or plan your exit strategy and sell your company for the highest valuation possible.READ MORE >>
You’ve decided to sell your business. Congratulations! Whether you are retiring, looking to embark on a new business adventure, or wanting to hand off the reins and take a different role in the company, the process of selling a business can be a trying one without the correct preparation and support. Fortunately for you, you can learn from other entrepreneurs who have been in your shoes and have shared the five things that they wish they had known before selling their business.
1) Neglecting to perform pre-transaction wealth planning can result in you potentially leaving a lot of money on the table. Before you sell, consider your family members’ wishes and concerns. Communicating with family members before the sale can help ensure smooth sailing through the deal negotiations. Effective tax-planning to support family members’ needs, philanthropic plans, or creating family trusts can help increase the value gained from the transaction.
2) Don’t underestimate the importance of a good cultural fit with a buyer. While the price is always at the forefront of a sellers’ mind, cultural fit can mistakenly be pushed to the back burner. One of the many things that you have worked hard to create in your business is the employee culture. Most likely, you want to see the close-knit “family” that you have built continue when you are no longer working there. Benchmark International understands that and will help you find that partner. We remain committed along with you to your goal of finding a buyer who will carry on your legacy.
3) Skimping on your marketing materials does not pay off in the long run. With confidentiality being of the utmost importance, how can you engage buyers without them knowing who you are? Preparing a high-quality, 1-2 page teaser that provides an anonymous profile of your business is the tool used to locate a buyer confidentially. This is followed by the Information Memorandum, with an NDA that is put in place for your protection. Benchmark International will prepare these high-quality documents and put your mind at ease.
4) Sellers wish they had known how detail-oriented the process would be, how many documents would be needed, and how labor-intensive each phase would be. One of the most crucial pieces of advice that the majority of sellers wish they had known is that you need to have a team. Sellers need to continue running their business as they were before, or operations can really start to slow. The last thing you want is for the value of your company to take a nosedive because you are investing all of your time into a transaction. With the team at Benchmark International as your partner dedicated to the M&A process, you will be free to continue to focus on the growth and operations of your business. We will handle the details for you.
5) Finding a like-minded partner can give a seller a false sense of security that the transition from two companies to one will be easy. You need a trusted advisor that will help you navigate the complexities of integration, giving you insight on some of the other intangibles that need to be negotiated. Those intangibles include the details of your role after the sale, employment contracts, earnouts, etc. With Benchmark International’s vast knowledge and experience in M&A deals, we know what is usual and customary to request throughout the negotiation process and will bring more value to your transaction.
Congratulations again, this is an exciting time for you! With the right partner, it can be a smooth and profitable process as well. Benchmark International has a team of specialists that arrange these types of deals every day. We can answer your questions and help you determine what is best for you, your business, and your exit plan. A simple phone call or email to us can start the process today and move you one step closer to accomplishing your goals.
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That’s an easy answer. YES! You absolutely should hire an M&A advisor to sell your business. Here’s why.
It’s Not Easy
The process of selling a company is guaranteed to be complicated. While an accomplished attorney or accountant can help, you are going to need a true expert intermediary to handle the entire venture if you are serious about selling and getting the best possible deal.
Consider the seemingly endless amount of work that needs to be done.
• Data and documentation must be produced and organized, stretching back several years to a decade. This is going to include financials, vendors, contracts, and so much more. Do not underestimate how overwhelming the paperwork will be.
• Potential buyers will need to be identified and vetted. A good M&A advisor has access to connections and a knowledge base that you would otherwise never have, opening up an entirely new realm of potential buyers. This process will include a fair share of phone calls, emails, and face-to-face meetings, all of which add up to be very time-consuming.
• You are going to need an experienced negotiator that knows how to maximize your business value and lay the groundwork for getting you what you want. This means knowing how to push a deal forward while providing you with peace of mind that things are on the right track. This also means creating a competitive bidding landscape.
Get Peace of Mind
Selling your business is not a process that should be taken lightly. Countless decisions will need to be made. Consider the reality of what is going to be required and embrace the fact that you cannot shoulder the burden and run your company. Make sure you can sleep at night. Find an M&A advisor that will find you the right buyer, deal with the minutiae, and get the job done—all while sharing your vision for the company, as well as your exit strategy.
They Can Get You More Money
It is also important to note that an M&A advisor is more likely to get you more money. Research shows that private sellers receive significantly higher acquisition premiums when they retain advisors, in the range of six to 25%. Additional research shows that 84% of mid-market business owners who hired an M&A advisor reported that the final sale price for their business was equal to or higher than the initial sale price estimate provided. After all, they know how to value a company properly.
Another benefit of having an M&A advisor is that it shows buyers that you are a serious seller. As a result, hiring an M&A advisor can help drive up your company valuation and get you more favorable terms.
Enlisting the guidance of the wrong advisor can be disastrous. The last thing you want is to end up in negotiations with someone who does not have your wants and needs in mind at all times. Even worse, they can slow down the process and cost you a fortune. When making this decision, know what to look for:
• You want an advisor that understands you, your company, and what you expect to achieve from the sale.
• Consider their experience in your sector, as well as their geographic connections, and how that can work for your business. Global connections are especially helpful. And do they usually work with businesses that are around the same size as yours?
• They will adequately prepare you and manage your expectations.
• They will work diligently to find the RIGHT buyer, not just the easiest or the richest.
• They should be honest, and you should trust them because they have demonstrated that they are worthy of it.
• Their track record will speak for itself. A quality business acquisition advisor is going to have a proven reputation, client testimonials, credentials, and accolades.
• Also, ask if they use any proprietary technologies or databases and how it helps them gain insight into specific industries.
Take your time in evaluating potential advisors. A good firm will patiently accommodate your process. You are going to be working closely with them through a grueling journey, so you will want to feel comfortable with their team and confident that they will work around the clock to get you the most favorable results possible.
Once you have decided that the time has come to sell your company, you will want to be as prepared as possible for the endeavor. Being adequately prepared will pave the way for a smoother process, avoid unnecessary delays in the sale, and increase the value of your business. Use this cheat sheet as a guide to get your business ready for what lies ahead.
Know Why You’re Selling
An important part of selling your company is having a clear understanding of why you are doing it.
- Do you want to exit the business completely and retire?
- Do you wish for it to be under control by family or an existing employee?
- Do you hope to retain a stake in the business as part of the sale terms?
- Do you plan to sell the business to facilitate its growth?
- Do you aspire to sell the business to fund other ventures?
These questions should all be considered so that you have a clear answer before initiating the sale process. By knowing why you are selling, you can look for the right kind of buyer to suit those needs and establish a clear plan of action.
Compile the Proper Documentation
Any buyer is going to expect to see the facts and figures on your business. The more prepared you are to provide detailed documentation, the more likely they will be to trust you. Items you should compile and have ready for review include:
- Current and recent profit & loss statements
- Balance sheets, income statements, and tax returns for at least 5 years
- Leases and real estate paperwork
- A business plan
- A marketing plan
- Accounts payable and client lists
- Inventory and pricing lists
- Insurance policies
- Non-disclosure/confidentiality agreements
- An executive summary and detailed profile of the business
- Employee, customer, vendor, and distributor contracts
- Outstanding loan agreements and liens
- Organization chart
- Letter of intent and purchase agreement
Inventory Your Assets
Your assets are a key factor in determining the value of your company, so it is important to have a clear picture of what they are and what they are worth. Create a record of these assets, including:
- Business furnishings, fixtures, and equipment, inventory, real estate, automobiles
Intellectual property assets:
- Trademarks, patents, licensing agreements, trade secrets, and proprietary technology
- Brand equity, business name, and brand identity
- Processes and strategies
- Trained employees
- Loyal clientele
- Supplier and distribution networks
Enlist the Help of an Expert
Selling a business is a complicated process, and it is not as simple as just gathering the items listed above. This is why most business owners opt to partner with a mergers and acquisitions firm to organize a deal. They do all the work and tend to all the details so that you can focus on running your business and keeping it thriving in the wake of a sale. This includes finding the right buyers, creating a competitive bidding environment, and making sure you get the most value for your company.
Advisors such as our experts at Benchmark International have specialized tools at our disposal that are proven to maximize value for our clients and get desired results. Give us a call and let us put our connections to work for you.READ MORE >>
Are you considering buying or selling a privately held business? Below are a few stats that you might find surprising:READ MORE >>
Determining whether it is a good time to sell your business is one of the most challenging decisions a business owner has to make. There are innumerable factors that affect this decision and it’s important to not get overwhelmed. A few things to take into account are financial situation, the company’s future/outlook, the opportunity cost of time, and the type of deal structure being pursued.
Usually, the first factor that business owners consider when making the decision to sell is the financial impact this will have on their lives. It’s important to analyze one’s current lifestyle and how a potential sale would change that – what the payoff would be. Unless a business owner is in a troubled situation, they’ll want to make sure that the decision to sell will not hinder their long-term lifestyle. A hasty decision here can have a catastrophic economic ripple effect. But, selling at a time that maximizes economic profit can potentially result in lifelong financial freedom.
If an owner is at a point to even consider selling a business, there’s a high probability that they’ve put in a significant amount of time, effort, and capital into it. Pondering this decision generally stems from a plateau in company growth or changes in the industry landscape. When this stage is reached, one must determine if they are in a position to take the company to the next level or if it is better to move on after building it to this point. It’s important to understand that being aware of “when to get out” is not a slight on the owner. Rather, it is the recognition of an opportunity to pursue other goals. The business has been a large part of life, the employees are important, and the hopes of a successful future is why companies are built. So, the key is to make sure that the “hands” the company is going to be in moving forward satisfy the needs of all the key people that are going to be impacted by a
Letting go of something that has been such a large part of one’s life can be very daunting. The fear that this is “the end of the line” for a business owner is often what doesn’t allow an individual to make a decision with sound judgement. The opportunity cost of time needs to be taken into consideration – that is, what you can allocate time to in life that you were unable to do before. Perhaps an exit can allow more time with family or another business venture; all such options open up more once the full scope of a business sale is analyzed beyond the initial fear.
The type of deal for a business sale is arguably the most important factor when making the decision to sell. The beauty about this is that deals can be structured in almost any way imaginable. Many owners think that selling a business is an “all or nothing” type of transaction. But the reality is that majority of business acquisitions are centered around partial sales and/or long-term seller incentives. It is perfectly reasonable for a founder/owner to retain ownership to “keep some skin in the game” or to have a management agreement that allows them to continue being involved in the company. Owners need to educate themselves on the kind of deal structures most suited for them and understand that the scope of deal types is far more customizable than people realize.
As has been pretty clear, there is no cookie-cutter process behind making the decision to sell a business. Individuals need to take countless variables into consideration when doing something of this magnitude. A great way to begin this process is to narrow down what aspects of the decision are most important to the owner and then analyzing each variable individually. Most importantly, don’t forget that if a deal is thinkable, it is achievable.
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For the last several years, the saying has been “There’s never been a better time to sell.” Multiples have been high. Buyers have been plentiful. Debt has been cheap. Optimism has run strong. The truth is, it is undeniably still a great time to sell; it’s never been better. But …
It takes time to sell and for the first time since emerging from the Great Recession, certainty about whether or not the later part of the new year will be a good time to sell- the best ever – is down. Anyone who says they can predict these markets is a fool. But the probability of a turn is certainly high and increasing as we begin this year.
The good news is that the signs indicate not an immediate downturn but rather one that can still be beaten to the finish line. Selling a business should take six months to a year. Thus anyone moving out now on a process should be able to take advantage of these good times – if they get started fast and, more than ever, move diligently and place a higher emphasis on certainty of close when selecting their winning bidder.
The change in the tea leaves really began in November and accelerated throughout December. Some of the key indicators include:
- In a December Duke University poll, almost half of responding U.S. CFO’s stated that they believed a recession was likely to occur in 2019. Even more compelling, more than 80% of those CFO’s felt recession would strike by the end of 2020.Right or wrong; the respondents to this poll are the key influencers of the amount of M&A activity generated by strategic buyers – and those most responsible for bad deals. If the economy does sour, or they simply believeit is going to sour, they will not be sticking their necks out for adventuresome acquisitions at record multiples.
- The public markets provide several signs. The first is the relative comparison of the large caps, to the midcaps, and then to the small caps. The M&A market for privately-held companies can essentially be seen as a microcap extension of the public markets. While we all know the public markets did not do well last year, what most have not commented upon is that in the last four months of the year, according to the Wall Street Journal, (2) large caps were down 5.5%, midcaps were down 8.6% and small caps are down 16.4% going into the last trading week of the year.We’ve not yet seen the extension of this extrapolated line into the private markets but one must wonder how long the trickle-down effect will take. Smaller companies tend to do well at the beginning of an upturn and larger cap companies do better at the end.
- Debt is becoming a more attractive alternative for investors. This will be problematic to the sellers of businesses for various reasons. Most obviously, M&A buyers are large consumers of debt. They use it to buy companies. If they must pay more for their debt, they have less money left in their accounts to offer sellers. Less obviously but probably more significantly, the historically abysmal returns debt has offered for much of the last decade have led many typical debt investors, including insurance companies and pension funds, to provide equity to private equity funds. Flush with this extra cash, PE funds have been on a buying spree which is commonly stated to be the driving force behind today’s frothy valuations. As those investors shift back to the more normalized bond markets, private equity will have less energy and vigor for aggressive bidding.
- The financial press seems to be of the mind that the artificial boost to strategic buyers provided by the recent tax cuts has run its course. Is this a fair assessment or simply “Trump-bashing”? We have no idea but we all know that in the markets, sentiment is often more important than reality. Perhaps the fact that 2018 saw increasingly attractive results for sellers was a result of those tax cuts carrying the bull market on around for one last lap. Again, we are not talking certainties here, just indications and probabilities.
- The strong dollar has dampened the ability of foreign buyers to compete in the US markets.With yet another class of buyers lowering their activity levels, it may not be long before the laws of supply and demand kick in and the equilibrium point on the old supply and demand curves shifts down and to the left.
- China has largely gone home. As 2018 proceeded, the Chinese government tightened its grip on the export of capital. In the last half of 2018, the US government began to make Chinese investors feel unwelcome as well. Numerous high-profile deals were killed in a very visible fashion as a result of regulatory interference on both sides of the Pacific. These included, most notably, the purchase of Recurrent Energy Developments operations by Shenzhen Energy in August and then Broadcom’s acquisition of Qualcomm. According to CNN Money, Chinese investment in the US fell by 92% between the first half of 2018 and the first half of 2017 – 92% - and has been declining steadily since the second half of 2016.Add to this the late 2018 US-China financial cold war and China’s slowly increasing realization that it has been splurging on debt that is now coming due and proving hard to pay down, and the spigot is now approaching the closed position.
- Forecasted growth of companies in the US public markets has taken a definite downturn. The S&P 500 saw collective growth of 7.3% in sales and 8.2% in profit year-over-year in the third quarter. The Wall Street Journal has been consistently predicting over the last three months that those same figures in a year will have fallen to 5.4% and 4.1% respectively.While the private markets are not the public markets, both are selling that intangible asset known as future cash flows and if buyers feel the big companies can’t continue to deliver outsized returns, they are likely to share at least some of that sentiment when it comes to the private markets.
- Divided government might bring an end to the pro-business approach demonstrated over the last two years. The people that matter state that decreased regulation, lower taxes, and a more tolerant enforcement environment have benefited their businesses and increased the prices they are willing to pay for companies. But a period of more compromise is now inevitable and the uncertainty of the 2020 elections will likely only grow and bring with it a sense of increased risk that will affect valuations.
- All good things must come to an end. We have enjoyed a ten-year bull market in M&A, both private and public. That qualifies as “long in the tooth” to be as polite as possible. It seems that 4% GDP growth is not sustainable. Unemployment can’t go any lower. Further tax decreases seem unlikely. The federal deficit and debt are growing. Interest rates are not likely to drop. Confidence and sentiment could not be higher than they were three months ago and are in fact a bit lower now than they were then.
The good news is that we’ve seen absolutely no indication that the market for private companies has yet been affected by these indications. Furthermore, changes in valuation, whether favorable or unfavorable, have not historically occurred rapidly. If there is to be a drop in multiples, it will be perhaps not gradual but at least measured. That said, the probability we now face is that we are more likely than before to look back from a spot twelve months in the future and say “I remember when it, was the best time to sell.”
The Mergers and Acquisitions (M&A) process is exhausting. For most sellers, it’s a one-time experience like no other and a marathon business event. When done well, the process begins far in advance of the daunting “due diligence” phase and ends well beyond deal completion. This Seller’s guide summarizes key, and often overlooked, steps in a successful M&A process.
Phase I: Preparation – Tidy Up and Create Your Dream Team.
Of course, our own kids are the best and brightest, and bring us great pride and joy. Business owners tend to be just as proud of the company they’ve built, the success of their creation, and the uniqueness of their offering. Sometimes this can cloud an objective view of opportunities for improvement that will drive incremental value in a M&A transaction.
For starters, sellers must ensure that company financial statements are in order. Few things scare off buyers or devalue a business more than sloppy financials. A buyer’s Quality of Earnings review during due diligence is the wrong time to identify common issues such as inconsistent application of the matching principle, classifying costs as capital vs. expense, improper accrual accounting, or unsubstantiated entries. In addition, the ability to quickly produce detailed reports – income statement; balance sheet; supplier, customer, product, and service line details; aging reports; certificates and licenses; and cost details – will not only drive up buyer confidence and valuations, but also streamline the overall process.
Key in accomplishing the items above as well as a successful transaction is having the right team in place. Customarily, this doesn’t involve a seller’s internal team as much as his or her outside trusted advisors and subject matter experts. These include a great CFO or accountant, a sell-side M&A broker, a M&A attorney, and a tax and wealth manager. There are countless stories of disappointed sellers who regretted consummating a less-than-favorable transaction after “doing it on their own.” The fees paid to these outside subject matter experts is generally a small part of the overall transaction value and pays for itself in transaction efficiency and improved deal economics.
Phase II: On Market – Sell It!
At this stage, sellers that have enlisted the help of a good M&A broker have few concerns. The best M&A advisors are very hands on and will manage a robust process that includes the creation of world class marketing materials, outreach breadth and depth, access to effective buyers, client preparation, and ongoing education and updates. The seller’s focus is, well, selling! With their advisor’s guidance, a ready seller has prepared in advance for calls and site visits. This includes thinking through the tough questions from buyers, rehearsing their pitch, articulating simple and clear messages regarding the company’s unique value propositions, tailoring growth ideas to suit different types of buyers, and readying the property to be “shown.”
Most importantly, sellers need to ensure their business delivers excellent financial performance during this time, another certain make-or-break criterion for a strong valuation and deal completion. In fact, many purchase price values are tied directly to the company’s trailing 12-month (TTM) performance at or near the time of close. For a seller, it can feel like having two full time jobs, simultaneously managing record company results and the M&A process, which is precisely why sellers should have a quality M&A broker by their side. During the sale process, which usually takes at least several months, valuations are directly impacted, up or down, based on the company’s TTM performance. And, given that valuations are typically based on a multiple of earnings, each dollar change in company earnings can have a 5 or 10 dollar change in valuation. At a minimum, sellers should run their business in the “normal course”, as if they weren’t contemplating a sale. The best outcomes are achieved when company performance is strong and sellers sprint through the finish line.
Phase III: Due Diligence – Time Kills Deals!
Once an offer is received, successfully negotiated with the help of an advisor, and accepted, due diligence begins. While the bulk of the cost for this phase is borne by the buyer, the effort is equally shared by both sides. It’s best to think of this phase as a series of sprints and remember the all-important M&A adage, “time kills deals!” Time kills deals because it introduces risk: business performance risk, buyer financing, budget, or portfolio risk, market risk, customer demand and supplier performance risks, litigation risk, employee retention risk, and so on. Once an offer is received and both sides wish to consummate a transaction, it especially behooves the seller to speed through this process as quickly as possible and avoid becoming a statistic in failed M&A deals.
The first sprint involves populating a virtual data room with the requested data, reports, and files that a buyer needs in order to conduct due diligence. The data request can seem daunting and may include over 100 items. Preparation in the first phase will come in handy here, as will assistance from the seller’s support team. The M&A broker is especially key in supporting, managing, and prioritizing items for the data room – based on the buyer’s due diligence sequence – and keeping all parties aligned and on track.
The second sprint requires excellent responsiveness by the seller. As the buyer reviews data and conducts analysis, questions will arise. Immediately addressing these questions keeps the process on track and avoids raising concerns. This phase likely also includes site visits by the buyer and third parties for on-site financial and environmental reviews, and property appraisals. They should be scheduled and completed without delay.
The third and final due diligence sprint involves negotiating the final purchase contract and supporting schedules, exhibits, and agreements; also known as “turning documents.” The seller’s M&A attorney is key in this phase. This is not the time for a generalist attorney or one that specializes in litigation, patent law, family law, or corporate law, or happens to be a friend of the family. Skilled M&A attorneys, like medical specialists, specialize in successfully completing M&A transactions on behalf of their clients. Their familiarity with M&A contracts and supporting documents, market norms, and skill in selecting and negotiating the right deal points, is the best insurance for a seller seeking a clean transaction with lasting success.
Phase IV: Post Sale – You’ve Got One Shot.
Whether a seller’s passion post-sale is continuing to grow the business, retire, travel, support charity, or a combination of these, once again, preparation is key. Unfortunately, many sellers don’t think about wealth management soon enough. A wealth advisor can and should provide input throughout the M&A process. Up front, they can assist in determining valuations needed to achieve the seller’s long-term goals. When negotiating offers and during due diligence, they encourage deal structures that optimize the seller’s cash flow and tax position. And post-close, sellers will greatly benefit from wealth management strategies, cash flow optimization, wealth transfer, investment strategies, and strategic philanthropy. Proper planning for post-sale success must start early and it takes time; and, it’s critical to have the right team of experienced professionals in place.
The M&A process is complex, it usually has huge implications for a seller and his or her company and family, and most sellers will only experience it once in a lifetime. Preparing in advance, building and leveraging the expertise of a dream team, and acting with a sense of urgency throughout the process will minimize risk, maximize the probability of a successful M&A transaction, and contribute to the seller’s success and satisfaction long after the
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It is imperative that during an M&A transaction thorough due diligence is conducted, not least because it helps to establish the true value of a transaction.
Due diligence is a term applied to the work acquirers undertake after signing HoTs (Heads of Terms) and falls into three main categories: commercial due diligence, financial due diligence and legal due diligence. It is a review of the seller’s company and includes looking into areas such as potential risks and liabilities, the seller’s competition, middle management and employees, financial status, intellectual property, and assets.
It is not an easy task to conduct, so here are five tips on how to ease the process:
TIP ONE: IT’S NEVER TOO EARLY TO PREPARE
An acquirer will want to see an extensive list of documentation which can include copies of contracts with suppliers, intellectual property registration, computer systems and data protection, employment contracts and pensions, and much more.
It is wise to draw up a due diligence checklist anticipating what an acquirer will want to know – most will provide this when the time comes but a checklist early on ensures that these documents are prepared and up-to-date.
Being prepared with this information, before an exit is even on the cards, is important as it can help expedite the transaction and make the company look more attractive to potential acquirers – if information can be provided quickly, an acquirer will know the transaction is being taken seriously.
READ MORE >>
TIP TWO: USE A DATA ROOM
When the mention of selling your business comes up, you might feel a little uneasy about starting the discussion. Your business is your baby, and the thought of letting go can be overwhelming. The truth is; however, failing to plan is a plan to fail when it comes to your business exit strategy. You need to have an exit strategy in place for your business. Everyone thinks of their future, but they don’t always take active steps in the present to prepare for what they want tomorrow. There are many reasons why you should discuss when and how to exit your business. Here are eleven reasons to have the exit conversation now:
1) Anything can happen at any time – This is so true. We cannot anticipate what will happen unexpectedly. For this reason, you need to have an emergency exit plan in place. What will you do if you have something happen that requires you to step down from your business quickly?
2) Family obligations are taking more time from the business – Business owners run businesses and have families all the time, but depending on the size of your business and the size of your family, you may need to spend more time away from the business. If you don’t have a team in place that can run the business without you for a few days, exiting might be your best bet.
If obligations, such as an ill family member, or a lot of educational or extracurricular commitments for your children are taking from your time, you could experience a negative shift in the dynamic of your business. A strategic partner can help you free up some time for your family while still allowing you to take an active part in your business’s growth. This type of partnership doesn’t require an immediate exit from your business and allows you to discuss an end-goal for this exit strategy with the partner you join.
3) Personal health issues are pulling you away from the business – When your personal health is in decline, it can be difficult to continue running the business. A business owner doesn’t need the undue stress caused by juggling an illness and the company.
Furthermore, if you find your health declining, or the health of a close loved-one, your priorities might change. Your view on where your time needs to be spent might be more focused on your personal relationships versus constantly working on growing your business.
Again, spending your time away from the business will have a direct negative effect on your revenue and daily operations. This makes the goal of achieving maximum value more challenging. Therefore, having an exit plan is essential.
4) You don’t have anyone in place to take over the business – You’re a great leader, and you run your business like a well-oiled machine. However, what happens when you’re gone? You need to have a plan in place. If you find your children aren’t interested in taking over, or if you don’t have any children, or if you don’t have a manager in place to take over, you need to know what you will do when it’s time to leave your business behind.
5) You are getting burnt out – Running a business takes a lot of tenacity. The burnt-out feeling can creep in slowly and take hold in what feels like an instant. It’s important to balance your work life and home life, and that takes commitment and fine tuning. You need to set boundaries to make it work, and if you don’t have a good handle on taking time for yourself, and you are just barely keeping things afloat, exiting partially might be a good option to help you get back time to yourself and still have your business grow.
6) You aren’t doing what you love – There’s this ambitious view of starting a business. You think you can bring a new concept, service, or brand to the market, and you’re excited and ready to go. Everything starts strong and innovative ideas are flowing. Then, you hit a plateau and find yourself working on administrative tasks.
How did you get separated from doing what you love to do? You aren’t implementing new ideas and performing customer outreach like you used to. You don’t have time to research your competitors and bring new ideas to your business because all your time is tied up in making sure the business stays where it is and doesn’t fall behind. There are solutions for this.
A financial investor can help with those administrative tasks while you seek innovation. After all, no one knows your business like you. You can see where you want it to go, and you are confident you could achieve the next level success if you only had someone in place to do all the extra administrative tasks that have begun to fill your time.
7) The baby boomers are retiring – There are over 70 million baby boomers in the US, and they own more than 12 million businesses in the US. The sales of these businesses will saturate the mergers and acquisitions market in the coming years. More businesses for sale in the market means businesses will be sold for less. Right now, it’s the sellers’ market, but in coming years, it will be a buyers’ market. With more businesses to choose from, buyers will be able to negotiate lower prices for the investments they are considering. You don’t want to lose value because you wait too long. Now is the time to consider your exit strategy.
8) Low interest rates won’t last forever – There have been several changes in the market recently. Unemployment rates are below four percent for the first time since 2000, and it’s only expected to go down further. This is great for the workforce, but for business sales, it means an increase in interest rates. There are four interest rate hikes estimated to take place over the next year. Now is the time to take advantage of the current mergers and acquisitions marketplace.
9) Dry powder is at a record high – Reserves in dry powder have peaked, and this means private equity firms have more cash to spend on transactions. Now is the time to take advantage of this sum of cash waiting to be spent. The tax law created ample opportunity for investors to explore more options. Let yours be the one they choose while the market is still hot. If you can show how your business stands apart from the crowd, you can also negotiate competitive multiples for the purchase of your business.
10) Growing has become a challenge – Your business has grown a great deal, but now you’ve hit a plateau. How can you continue to experience rapid growth when you can barely keep up with your business as it is? It might be time to consider a strategic partner who can bring in a synergistic platform to help take your company to the next level and fulfill the vision you have.
11) You’re ready to slow things down and experience the other luxuries life has to offer – Being a business owner takes a lot of time away from other hobbies, life experiences, and family time too. And now? You’re at a crossroads. You love your business, but you love your family, and you want to experience some other things in life. Retirement isn’t sounding so bad, but you don’t know how to step away.
There are a multitude of reasons to begin the exit conversation for your business. This list is far from all inclusive, but it does illustrate why planning a proper exit strategy is essential as a business owner. The market changes, and it won’t be at its height forever. Starting the conversation is not a commitment to sell your business. You need to have a plan in place, and at least, if you start exploring your options, you will learn what choices you have.
If you are interested in exploring your options and better understanding the current state of the market and what’s expected in the near future, Benchmark International is a mergers and acquisitions firm dedicated to putting our clients’ needs first. We work to find you the best value for your business, and we don’t settle. We search until you find a deal that works for you and your business, both financially and culturally.
The thought of selling your business has been on your mind for quite some time, and now you have made the decision to sell. The business is ready to go and you have been working with your advisor to bring in a suitable buyer. The offer comes in and you have signed a letter of intent. The process is in motion, and this is what you have been waiting for, but what about your employees? Your exit plan has been on your mind, but your employees probably haven’t given much thought to what will happen if and when you exit the business. You have a couple options when it comes to sharing the news of your business sale to your employees.
Some business owners opt to not share the decision to sell with their employees at all. This option can be viewed as inconsiderate, but it does alleviate the risk of a mass exodus from the company. There are pros and cons to any decision, but not telling your employees right away and keeping information for yourself allows you to keep them from undue stress.
It’s important to protect the integrity of the deal and the company. This means you need to keep details under wraps. If you spill the beans to your employees, there is no guarantee that the information will stay within your company, and it could be concerning for your client base if they catch a whiff of the pending sale.
This doesn’t mean you can’t put things in place to protect your employees through a transition, of course. You just need to pay attention to their needs and ask your advisor what your options are in a sale. If you choose this route, you need to be prepared to extinguish any rumors and answer employee questions the best you can if they notice any changes taking place.
Keep Them in the Loop:
Some owners think the best policy is to be transparent with employees from the outset. The decision to sell has been made, and you are exploring options. So, you want to inform your employees what’s going on. You can be up front with employees and let them know of your plans to sell and your desire to find the right buyer for the company who will instill the same values you hold as a business leader.
This will need to be handled delicately, so your employees will remain comfortable throughout the process. You will need to drive home the initiative that you are doing what is best for the company as a whole and selling the business doesn’t mean the end of the business but rather the growth of the business. It is important to keep the conversation positive, so your employees will get on board with your plans.READ MORE >>
As stated on Benchmark International’s website, our perspective makes us different. We strive to help clients reach their maximum value for the sale of their business. To accomplish that goal, it’s important to also have good buyside perspective.
Buyers look at companies differently than sellers and some advisors. Certainly, a company’s financials are a common barometer for both sides to gage a company’s performance and success. And cultural fit is a must. Beyond those metrics; however, buyers prioritize characteristics to mitigate investment risk. These characteristics include, scalability, stability, resiliency, and the ability to grow.
Scalability is about a company’s ability to accommodate growth – to behave as a larger entity. Some acquisitions result in smaller companies becoming part of much larger organizations. The new structure sometimes brings new processes, systems, and reporting requirements. These changes in scale can introduce risk if personnel lack the bandwidth, appetite, skills, or resources to ramp up. Buyers seek assurance that the team is adaptable and capable of scaling.
Many investors also seek stability. The project-based business with wild swings in revenues or heavy seasonality, for example, presents significant challenges in performance, planning, and execution. For most investors, consistency is vital and this is often tied to a company’s revenue model. This is a key reason why buyers prefer recurring revenue models. For industrial services businesses, long-term or preventive maintenance contracts provide recurring revenue. Many equipment manufacturers have transitioned to providing a service rather than hardware. For example, some compressor manufacturers retain the physical asset and provide an “air as a service” guarantee for a monthly fee. And software companies achieve this by transitioning to a subscription, or software as a service (SaaS) model. Together with a “sticky” customer base – high switching costs or risk – these all provide a level of revenue stability that might otherwise be absent.READ MORE >>
You’re sitting at your desk eating your lunch and reviewing the emails in your inbox when your phone rings. You pick up, on the other end of the phone is an inquirer looking to purchase your company. You haven’t given much thought to whether or not you’re open to selling your business, and here is someone who is ready to purchase it right now. What do you do?
Engage the Right Support Team
First things first, congrats! You might not be thinking to sell right now, and that’s okay, but now you know there is interest in your enterprise. If this inquiry has sparked curiosity in you to explore the possibilities of a sale, you need to be prepared. How do you approach an offer for your business out of the blue? Well, you don’t go into it alone, that’s for sure. You need to have the appropriate team in place to assist you should you decide to explore your options. You will need a sell-side mergers and acquisitions specialist to help you navigate the waters of a sale and break down your options for you.
When it comes to selling your business, it’s okay to acknowledge that you don’t know what you don’t know. Having a mergers and acquisitions firm on your side can help you determine what the approximate value of your business is against others in the same market. Furthermore, you can discuss what your aspirations are for your business and what you hope to achieve from a sale.
What Do You Want?
A call that catches you off guard might have you thinking what the buyer’s intentions are, but you need to think about your intentions. If you consider selling your business seriously, what do you want from a sale?READ MORE >>
Know Why You Want to Sell
What do you plan to do after you sell your business? It’s important to know your purpose for selling, so you can appropriately plan what you want to do after the sale. Are you planning on a total exit, or do you want to stick with the business for a while? There are a few options at your disposal when deciding your reasons for exiting your company. If you are wanting to take a step back, but still want to have some involvement, you can keep a small percentage of the company and transition into a new role with lighter responsibilities after the sale.READ MORE >>
Your business is your baby, and the people who work for you are your family. A concern of many business owners thinking to sell is how they will care for their employees throughout the sales process.
Download our guide “If I Sell My Business, How Can I Protect my Employees?,” today!
In this guide, you will learn how to best communicate with your employees effectively, how to negotiate on their behalf, how to put their concerns at the forefront of your decisions, and how working alongside them can help alleviate their concerns.READ MORE >>
It’s time to dispel the myth that it’s better to use an industry expert versus a mergers and acquisitions expert for the sale of a business. At times, sellers are apprehensive about engaging with a mergers and acquisitions firm that doesn’t specialize in one specific industry, and they say they would rather use an industry expert instead. This isn’t the best strategy for a seller who hopes to gain the most value for his or her business.
The mergers and acquisitions cycle is constantly changing. That’s why it’s important for mergers and acquisitions firms to stay on top of industry trends and stay abreast of any new developments. At Benchmark International, we are M&A professionals who work in all industries. Our business is selling businesses, and we understand the industry specifics.READ MORE >>
Benchmark International is delighted to announce our expansion into Nashville, Tennessee. Nashville has become a hotbed of mergers and acquisitions activity, and it is one of the fastest growing cities in the US.
Additionally, Benchmark International is growing exponentially, with four new regional offices opened domestically and internationally. So, it was only logical for Benchmark International to expand to this territory and be a part of this growing business culture.READ MORE >>
There is still the chance for you to capitalise on the extremely low 10% capital gains tax rates which are on offer via Entrepreneurs’ Relief, whenever you fully or partially sell your company.READ MORE >>
Irrespective of the outcome and the eventual deal Britain strikes with the EU, there will be greater uncertainty for businesses in the near-term.READ MORE >>
‘To err is human’, it’s said … but for sellers and buyers alike, the M&A process is surely not a good time to make mistakes.READ MORE >>
Entrepreneurs, by nature, are people who spend a considerable amount of time looking for the next opportunity. And for them, 'the next opportunity' often includes a suitable time to sell their company.READ MORE >>