Selling a business is an inherently stressful process. Owners must keep their business running well while at the same time marketing the business to buyers. Sellers must also prepare for the transition from an emotional perspective and a financial perspective. Most owners only go through the exit and sale process once so all of the steps are a novelty.
Buyers on the other hand have often acquired multiple businesses and have gone through many sale transactions. For all these reasons sellers should engage a team of experts to help them navigate the emotion and economics of a sale.
Deal team members
The deal team should consist of at least:
- M&A advisor
- M&A attorney
- Wealth manager
- M&A accountant
Focus on running the business and not the sales process
The sales process requires a big time commitment from the owner at various stages of the process. Advisors can assist sellers with the following so that burden is shared between principal and advisor:
- valuation,
- the preparation of marketing materials,
- building a buyer list,
- vetting buyers,
- due diligence,
- negotiation of deal documents
- escrow and final payment
Having a team with which to share the burden is critical because not all transactions close successfully in which case the owner must continue to operate the business post deal.
Establishing a value for the business
While sellers know their business better than anyone else they do not have a grasp of the value of their business in the current marketplace. Value is determined by an examination of the business and its financial results. Value is not as simple as multiplying sellers’ EBITDA or Seller’s Discretionary Earnings by a multiple.
M&A advisors are critical in helping owners understand what is the market value of their business. Value exploration may include obtaining pre-approval letters from lenders willing to lend on the business in advance of approaching buyers.
Without a range of values it is almost impossible for sellers to make intelligent post transaction/retirement decisions.
Maximizing the sales price
In order to maximize the sales price there need to be enough buyers interested to create an auction atmosphere. M&A advisors are experienced in preparing marketing materials and vetting buyers so that serious and qualified buyers bid to acquire the business. An important element to obtaining the best price is identifying the most likely buyer for the business. Without this buyer profile sellers can waste a great deal of time negotiating with the wrong parties. With an ideal buyer profile, M&A advisors can provide exposure to the right buyers. When combined with diligent deal marketing this greatly increases the odds of a successful exit.
Timely advice on key deal terms
Sales transactions involve many deal points, documents and paperwork. An external team will provide real-time advice to sellers on a wide variety of items from marketing materials to escrow and closing. Without this assistance an owner is left to their own devices with marketing materials, letters of intent, asset purchase agreements, and escrows.
For a seller who has never gone through the sales process navigating even a letter of intent with a diligence period, earnest money deposit and working capital adjustment can be overwhelming.
Assistance with retirement planning
Once there is a range of value for the business, then an owner can work with a wealth manager to determine if the sales price will be sufficient to fund their post-exit lifestyle. This is a critical exercise for the seller to perform before engaging with buyers. Otherwise the chance of seller cold-feet at the last minute increases exponentially.
A wealth manager can also provide guidance on what do with the cash post-sale and how the cash will cover the lifestyle needs of the owner.
Understanding the tax consequences of a sale
Sellers will want to know what their tax bill will look like after closing. The M&A accountant together with the wealth manager can educate the seller on the most likely tax impacts of a sale of the business. Assuming that they are engaged in advance of the exit, they can also suggest ways to minimize the tax liability from the sale transaction. This could include electing to receive installment payments, making charitable contributions, and other gifts.
Kresimir is a corporate and M&A attorney who helps families own, operate, grow, and sell their businesses. He has advised on, negotiated and closed deals in the $ Billions. Kresimir enjoys assisting families with building a team of outside professionals to maximize business efficiency and ensure long term success. He also has experience mediating disputes between business family members.
