Considering Selling Your Business?

Posted on April 27, 2021

The right advisor can add value in the business sale process

As a business owner, you have probably been negotiating different facets of your business for years. However, that may not have prepared you for the rigors of negotiating and managing the sale of your business. The process has many challenges and a misstep can result in an unfavorable outcome.

Why should a business owner pay an advisor to help sell their business?

The best way to answer this question is to talk with people in your specific industry who recently sold their business – their memories will be fresher, and they can speak to current market conditions. Find out if they used an outside advisor, and if not, would they hire one if they could start over again.

Securing maximum “value” for your company requires the right combination of industry knowledge, process experience, financial acumen, established marketing skills and tough but fair negotiating abilities.

6 steps in a business sale transaction

While no two deals are alike, there are six basic steps in the overall transaction process. Each has its challenges (and opportunities) and each step can result in significant financial swings, often times a six-figure amount. Here is an overview of the steps and how the right advisor can add value.

1. Confidential Company Valuation and Assessment

A successful outcome begins with your advisor doing their homework and setting the right expectations. Getting to know your company, the financials, and your story are important An experienced advisor will know the questions a potential buyer will ask. By the end of this stage, a good advisor should provide a market-based valuation range, ideas on potential strategic and financial buyers along with insights on how the market will perceive the business – it’s selling strengths and challenges.

2. Developing Marketing Materials and an Extensive List of Potential Buyers

A transaction advisor will prepare materials to assist a potential owner’s evaluation of the business, including:

• A cohesive deal process and detailed timeline
• A marketing document (also called a confidential information memorandum or “CIM”) The CIM presents the business like a good book, guiding the buyer through the relevant quantitative and qualitative information while telling a It includes financial data in a way qualified buyers readily understand and can process.
• A comprehensive buyers list containing purchasers that have expressed an interest in this segment – both industry buyers and financial/ private equity buyers.
• Additional information that allows a buyer to forecast synergies they could secure from the business

3. Contact Prospective Parties, Manage Initial Diligence and Negotiate Letters of Intent

 A transaction advisor will ensure pre-approved buyers have signed a “blind” (no name) confidentiality agreement, provide them the marketing material, and work to move each one to submit an offer. This is where an advisor can add considerable value as it is a very time-consuming phase. A good transaction advisor will handle relevant follow-up questions and negotiate aggressively on offers received.

4. “Deep Dive” Diligence / Quality of Earnings Review

 Once an LOI is signed, every buyer will begin what is referred to as a “deep dive” diligence process. Some will hire a third party (usually an accounting firm) to conduct a quality of earnings (“Q of E”) review. The Q of E is designed to ensure that all financial representations, and many operational ones, are as advertised. Sellers beware; some buyers use the information gained in the Q of E to chip away at the original offer. This phase is critical, and the right advisor will leverage their experience to help you successfully manage the process.

5. Negotiating Deal Terms and Agreements

 Business sale deals can “die” several times over the course of the transaction. The parties disagree, emotions get in the way and one party pushes back from the table. A talented advisor can get things back on track and get the deal closed.

A typical transaction will have 5- 7 agreements, each of which has a myriad of points to resolve. In addition to helping secure the best terms possible, a business transaction advisor can act as a “buffer” between the parties- providing a voice of reason when things become contentious.

But make no mistake, it also takes a qualified attorney to manage the legal process. However, an advisor with experience in your industry can provide direction using strategies learned from similar industry deals.

 6. Considerations for Closing and Announcement

 This aspect of a transaction does not always get the attention it deserves. How the event is communicated to employees (of both organizations), customers, vendors and the respective communities is critical. A quality transaction advisor will assist the seller and buyer to help make sure they have prepared communications and plans in place to effectively address employee questions and concerns.

Conclusion

Selling your business is likely a once in a lifetime decision – so you want to get it right the first time. Choosing an experienced advisor will help you stay focused on managing the business day to day and achieve a more favorable outcome for all of those involved.

If you are considering a business sale and would like to learn more about the process, please contact us. We are here to help.

About Keiter Advisors

Keiter Advisors is a full-service transaction advisory group serving companies in middle market M&A transactions and financing. KA is recognized as the national leader in assisting owners to:

• Buy or sell businesses in a variety of industries, including business services, foodservice distribution, healthcare, industrials, meat processing and produce companies, technology/media/telecom, and veterinary practices,
• Plan and execute transition strategies, including family buy out initiatives and third-party sale
• Examine the profitability of their business and develop viable improvement programs
• Renegotiate existing financing arrangements and secure new lenders