July 15, 2022
To set the stage, I am 53 years old and have been the founder, co-founder, or a significant shareholder in several businesses that grew to be very successful. In each case, we were founder-financed, grew organically and through acquisition, and ultimately sold. The buyers were public companies, private equity firms, and friendly competitors. In short, prior to forming GaP, my career was a series of rinse-and-repeat, start-up/grow/mature/sell stories. This blog describes the tail end of one of those stories.
My partners and I had built a highly-successful, environmental services business. We had hundreds of employees, tons of equipment, and a diverse customer base. After enjoying years of growth, we began to plateau and decided it was time to sell the business so that we could do something else. When you don’t know what you don’t know, you make decisions based on the information at hand, and you process it through the lens of your experience and intellect. What we didn’t realize at the time was just how important deep, specialized financial acumen was to the process of successfully selling a business.
• Creating competition for the right to acquire a business drives price and terms in the seller’s favor.
• Having sound procedures and maintaining control of the sale process dramatically increases the seller’s odds of success.
• M&A marketing is a numbers game.
• The importance of an advisor’s ability to build trust and rapport with buyer prospects so that a deal can get off the ground and across the finish line is a secret advantage.
The overconfidence we had regarding our handle on the operating financials blinded us to our need for serious accounting assistance – the assistance required to maximize sale-price validation through a quality of earnings exercise.
Like most successful business owners, we had a very good understanding of our operational accounting, treasury management, and data-backed confirmation tools and processes. Therefore, we ignored the need to partner with a transaction firm who was strong in the realm of financial metrics. We placed greater emphasis on the firm’s marketing resources and on whether we liked the lead advisor. In fact, we may have dismissed the lone advisor who best counseled us on how quality data presentation and its defensibility attract better buyers, which in turn drives price and terms in the seller’s favor through due diligence confirmation.
We went with the guy who told us what we wanted to hear over the firm we should’ve chosen. Now that I’ve been a transaction advisor for almost 7 years, I know without a doubt we left several million dollars on the table because we “thought” we were strong enough in the financial realm. The main issue was that selling the business required different accounting strengths than we possessed – ones that we didn’t fathom were needed. In truth, we were weak from the perspective of an accounting prove-out and defense position, and that made us vulnerable in M&A.
Being weak in this critical area caused a domino effect that ended with us selling to the wrong buyer, for a lower price than we could have garnered, and under terms that favored the buyer. The transaction provided great wealth for our families; however, because we cared about our employees, customers, and vendors, we made a mistake – which we realized too late. We could’ve done far better!
The lesson is that having deep accounting prowess in your transaction advisor is critical for maximizing your sale, and it’s always more than a one-person job. It takes an accounting team with M&A experience for businesses your size, with experience in satisfying a buyer’s lenders, and often with the industry-specific familiarity necessary to go toe-to-toe with private equity firms, public companies, and larger private suitors (and all of their hired experts).
Don’t leave millions on the table like we did. Interview until you find a transaction advisor that has walked in your shoes and who emphasizes the need for forensic-level presentation and defense of your numbers as the basis for maximizing your exit. Then you can close that chapter of your life with great pride and no regrets.
If any of this resonates with you, we encourage you to take our M&A Discovery Questionnaire and talk with us to see if your business makes the cut as one who can still command a great exit in this M&A environment. We will be in touch quickly to discuss the results. Click here to take the assessment.
Gilbert & Pardue Transaction Advisors (GaP) is a Houston-based business advisory firm serving lower middle market and middle market business owners from coast to coast through representation for Mergers & Acquisitions (M&A).
Matt Gilbert and Bret Pardue established GaP to provide owners of lower middle market and middle market businesses – those businesses generally enjoying annual revenue of $10-$80 million – with the quality of M&A representation and value-enhancement services previously only available to upper middle and large businesses. GaP brings highly experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle markets provides the quality of representation and transactional expertise that we do.