How to optimize price and get a deal done
Selling your business is a major consideration, especially after many years of long hours and hard work. Your business is most likely your highest valued asset in terms of dollars and retirement. Valuations are currently extremely high, but not likely to last for long given that a downturn in the financial markets is inevitable, and valuations have recently leveled off.
It is critical that CEOs and business owners receive the needed advice on the sale process in order to maximize the sale price, complete due diligence and get a transaction done. This process is extremely intricate and is comprised of nearly one thousand small yet very important steps.
Here are some important tips if you are considering selling your business in the near future:
Understand what the realistic value of your business is today by researching recent comparable Revenue and EBITDA multiples. It helps to have information that is organized, easy to understand, simple to interpret and supports the objectives of the sale process.
Structure the Sale to Protect Your Business
You need to be infinitely prepared prior to going to market. Carefully qualify who you engage with to manage your sale process, and only pursue acquirers that you determine are serious and have the funds to close. You, as the seller, need to understand what any offer is comprised of (cash, assets, stock, convertible notes, deferred compensation, earn out, etc.). An M&A advisor is critical to negotiating the Letter of Intent (LOI) to maximize your value, price and terms.
Get to the Offer Stage Quickly
Whether buying or selling a business, a well drafted offer letter in the form of a non-binding Letter of Intent is critical. It’s in no one’s interest to put a huge amount of effort and resources into a business sale before both parties can agree on an offer that is clear, understandable and that represents a good probability of closing. This is a critical aspect of the deal and your team of advisors can benefit you in the millions of dollars (price, terms, escrows, taxes, etc.) by gaining clarity on the offer up front.
Be Prepared For Due Diligence
Understand the other party’s position. This is key in your negotiations with the buyer and successfully getting through the rigorous due diligence process. In all cases, be ready for the due diligence process by preparing and organizing several months prior to selling in order to maximize your company’s value and enhance the probability of the deal closing. An M&A advisor is extremely valuable in preparing for a sale, not just during the sale process.
Determine Your Role in the Future
Negotiate your role and compensation early on in the process before you are too deeply vested in time and resources. Far too often acquiring companies will push this off until it is too late for you to strike a favorable compensation plan. You can make a substantial amount of money after the sale, and your involvement in the business for a period of time is critical to make the sale happen. This is an especially critical step where an M&A advisor can negotiate on your behalf where it will be extremely awkward for you to push this aspect of the deal on your own.
Hit Your Forecast Along the Way
It is extremely important to continue to achieve your monthly financial forecast during the sale process. Not achieving your sales and profit targets at a key point in the sale process is a common reason for business sales floundering or falling out altogether. Your business isn’t sold until the closing occurs and you never want to create concern or cause your buyer to renegotiate the price or to walk.
Keep the Sale Process on Track
The process of selling a business can absorb more time and resources than you realize, resulting in high costs and you being distracted from your business. Be very clear early on how the selling process should unfold and make sure you are delivering on your side. Keep on timelines and don’t abandon them at any point. Instill deadlines, as needed, lock in a target closing date as soon as the due diligence process is complete, and make sure the legal documents clearly reflect the Letter of Intent you signed up front.
Secure a team of advisors as a first step including an M&A advisor to manage the entire sale process, a corporate/transaction attorney and a CPA/tax advisor. This team will both optimize your sale price, focus on the net dollars to you after taxes, and greatly increase your odds of closing a deal.