How to Successfully Prepare for Your M&A Sale
How many fellow business owners dream of the day where you wake up free and clear of the pressures of business ownership? Imagine finally being able to travel the world at your leisure, relaxing on white sand beaches, playing 18 holes on Pebble Beach, or just spending quality time with the grand kids. Yes, I’m of course talking about retirement! How are you making sure this dream becomes an eventual reality?
If your version of business succession means selling your company, how do you begin the process? How do you successfully sell off the company you’ve put years of blood sweat and tears into?
In today’s competitive M&A market, if you haven’t yet started the planning process for this transitional event, you may want to start.
Things to Think About:
As a business owner, there are a number of questions you will want to consider:
What are my options to transition my business?
Is now the right time to sell my company?
What is the value of my company?
How do buyers view my company relative to my idea of value?
Is this value enough for me & my family to live off of?
Should I sell the company to the next generation of internal managers? A third party? What about a sale to the employees?
What are the risks of the above mentioned scenario?
How do I keep this quiet from customers, suppliers, and competitors?
What about the dynamics related to my employees and management team once they find out what I’m contemplating?
What is this process like?
Have you considered the challenges of transitioning into something new after years of running your own business?
What do you want the next chapter of your life to look like?
When business owners start to ponder these questions, they will commonly consult with their accountants, attorneys, money managers, friends & family, and any peers who have already gone through this process. All will offer advice and provide you a litany of even more questions to consider.
Taking a Deeper Dive
In addressing these questions, business owners will commonly want to know first, what is their business worth? Some may already have an idea based off of industry experience, information gathered from competitors, industry resources, and/or calls from unsolicited buyers. All too often business owners focus on the value of the company, not the quality of the asset they’re looking to monetize.
Along with what is my company worth, an equally as important question is:
How will a potential buyer value and see your company compared to other investment opportunities they see on a regular basis?
As a business owner establishes a value to their company, have they also considered how they will differentiate themselves to prospective buyers.
To make your company stand out, we need to think about the valuation and sales process in a very different way.
How Will Your Company be Valued?
There are a number of firms and professionals offering valuation services and the “secret” valuation trends within your industry. While this is valuable information, not all valuation firms are created equal. The business valuation process goes like this:
A business valuation firm will review your historical financial statements, ideally over the past five years,
They will ask for the company’s monthly balance sheet data and income statements for the last 12 months,
They will help you create a five-year forecast during a due diligence meeting with you and your business advisors
The firm will process this information through their “proprietary” financial valuation model
They will then sit down with you and detail your company’s worth.
Keep in mind the companies looking to acquire your company have their own valuation teams in house that will create their own valuation analysis with limited communication with you. These teams review companies for a living and are machines in their filtration process. The buyer’s valuation team goes far beyond what your valuation firm will provide. Why? It comes down to priorities. Your advisor’s goal is to help you through this once-in-a-lifetime process, determine a value range for your company, and close the deal. It’s very transactional. The buyer’s team is more vested in the buying decision. They have more skin in the game, and therefore need a clear understanding of the potential return on investment during their holding period (usually between four and six years).
Bridging the Gap Between Valuation and Operations
Whether a financial or strategic buyer is looking to purchase your company, they need to justify the purchase to their investment committee, board of directors and/or co-investors. Buyers are incurring more risk, so their level of detailed analysis is going to be more thorough. Their analysts will cycle through countless scenarios to determine all potential risks and rewards with each investment.
Business owners who are looking to sell often struggle with the ability to remove the emotional bias they hold towards their company, so evaluating the company from an investment committee point of view can be challenging. Can you say with confidence that your company is differentiated and structured enough to shine above all the other companies these buyers are looking at? If you’re even the slightest bit skeptical, this is where Madison Creek Advisors can help.
The Right Support
We’re not trying to diminish the value valuation firms, investment bankers and business brokers offer. Their network and relationships are critical to determining and maximizing company value. The goal of Madison Creek Advisors is to help you see your company’s value from the buyer’s perspective and to ensure you’re putting your best foot forward.
How do you show the value of your company beyond its financial performance?
What would you buy your company for today?
What would your investment thought process look like?
As you go through the planning process of selling your business, the emotional and mental toll on you, your family, and/or your business partners can be overwhelming.
Buyers will say and do things that upset you. You may question if they know what they’re doing. Things may be going smoothly, and as you approach the finish line the buyers suddenly uncover a new detail through the due diligence process and their initial offer is retreaded.
This process can take up to a year, and the last thing you want is to have the rug pulled from underneath you because the buyers want to reduce the transaction value and adjust the terms at the eleventh hour. Wouldn’t it be easier to get those things addressed and adjusted before you talk to buyers?
Are we able to find every problem within a company - no. Can we work in tandem with you to eliminate as many of the issues a potential buyer will uncover – absolutely.
How do we do it? We review your company's financials to determine its value range. We then correlate and translate that value based on how a potential buyer analyzes an investment into their decision-making process. Along with historical financial statements, here is a sampling of items buyers consider when determining the supportability of their investment:
Connect with Madison Creek Advisors
Madison Creek Advisors works with founder/family-owned businesses with EBITDA ranges of between $3.0 million and $20.0 million. In addition to helping these owners determine a range of potential range of value for their companies, we work with them to find the issues buyers will locate in their due diligence process and work to eliminate them to help maintain the value of the company.
If you want to learn more about how Madison Creek Advisors can help you through this process, please contact us here or call (312) 416-1864. A member of our team will be happy to reach out and schedule a time to discuss your questions.