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Of course it makes sense to try to get the maximum price for your business when you determine that it is time to sell. You have sacrificed, worked many hours and risked your financial well-being building your business into a profitable ongoing concern, possibly the envy of your competitors. Do you think that you will get the maximum price by only talking to buyers that seek you out?
I am often asked "How do I go about selling my business?" or "Why do I need an intermediary or business broker when I can just talk directly to buyers myself?" I find that if I respond with what are "the keys to selling a business for the maximum price," then the need for an intermediary becomes self-evident.
Keys To Selling Your Business For Maximum Price
The first step in the process is to prepare your business for sale. Clean out all the closets, ensure that your financials are in good shape (preferably audited or reviewed by a CPA), make sure that your business and business processes are well documented and that you have management in place that can succeed you even if you intend to stay on. A good intermediary can provide advice and counsel through this first step, identify potential deal killer issues and provide business consulting as well.
Determine what makes your business valuable and document it in written form with supporting exhibits, brochures and other relevant documents. A good business broker understands what buyers value, whether they are strategic or private equity, and can produce these documents in language understandable to buyers so that you are free to run your business free from distraction. Remember also that there will be different reasons for different classes of buyers to value your company so it will be important to tailor the documents to the individual buyers to ensure a high interest level.
Find the best buyer that meets your sale objectives. In middle market transactions that are handled by intermediaries, 80% of the ultimate buyers are unknown to sellers. Too many owners assume that the best buyer is a direct competitor; however, your competitors are usually the worst prospects to talk to. They may just want to steal employees, technology or customers and they generally will not pay the seller's stand-alone value, since they will rarely retain all of the seller's customers. The best buyers are those that are not direct competitors, but may be suppliers of similar products or services or may covet your customers, your technologies, or your intellectual property and believe that they can generate business above and beyond the business that they purchase from you, the seller. Good intermediaries have extensive buyer databases and access to data on essentially all potential buyers domestically and internationally. This is extremely time-consuming (generally forty to eighty hours per week) and only experienced firms supported by extensive databanks can effectively screen the multitudes of potential "maximum price" buyers.
Keep the sale confidential during selling process- if the owner is directly involved in sale process, it will become apparent to employees that something is up. When the owner is busy conducting tours and meeting with strangers rather than managing the business as usual, rumors start and employees become nervous. An effective intermediary controls the process, screening buyers and restricting contact with the seller to telephone conference calls. Only when the best prospects are qualified and supported with letters of interest spelling out the terms and conditions of sale does the seller personally meet with buyers.
Negotiate the best deal terms and purchase agreement you can without damaging your relationship with the buyer, particularly if you will work for that buyer. While attorneys generally negotiate purchase agreements, good business intermediaries negotiate the major terms and conditions of the deal upfront, thus saving much time and accounting and legal fees through the due diligence and purchase agreement completion process. In addition, the intermediary can play the bad cop role when needed, thus shielding the seller from potential confrontations that could be deal killers.
Critical to the successful sale of any business, the owner MUST continue to focus and provide the leadership necessary for the business to continue to grow through this potentially long sale process (generally six months to one year). There are too many examples of owners that have become distracted by the sale process, personally conducting discussions, negotiations and tours, only to realize too late that sales and profits have dropped, causing the buyer to "walk" at the last second. The sad owner with no completed deal, a declining business and nervous employees is an unhappy and all-too-common outcome.
Bob Vanderselt is a Principal with the Douglas Group Inc. The Douglas Group is an investment banking firm specializing in representing owners in the sale of their business. Bob had over thirty years of experience in the paper, plastics, chemical, packaging and consumer products industries as Division President, GM and CEO prior to joining the Douglas Group and has extensive experience in M&A both selling and buying companies.
Bob can be contacted at bvanderselt@douglasgroup.net
or (314) 991-5150.
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Learn How To Prepare
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