July 30, 2019
It’s easy to comb through Google search results and find advice on the M&A process. But what do sellers in the lower middle market really worry about, and what can you do to ease those concerns if you’re researching the most effective process for selling your business?
Here’s what we consistently hear from sellers:
Valuation is the single greatest concern for sellers. They wrestle with questions along the lines of, “Will I clear enough so that I don’t experience a reduction in lifestyle after I sell?” Many sellers want to understand how a buyer will value their company, and they’re confused by all the conflicting information floating around in the market.
This is where an experienced M&A advisory firm can help you understand the process required to successfully sell your business. A good firm will help you select the best process for your situation and guide you through identifying the myriad of variables affecting a buyer’s opinion of value.
Of course, every seller wants the highest price delivered in the shortest time frame. However, our experience has been that even if shareholders are ready to sell, often the business itself isn’t. Working with a skilled advisor prior to entering the selling process may uncover perceived weaknesses that - once shored up - will result in additional value. So if you’re uneasy about your company’s true market value or how a buyer might view your business, our advice is to get professional assistance as early as possible.
‘Soft’ Aspects of a Deal
Price and terms are primary, but once they are hammered out, many sellers turn their attention to the softer, less tangible aspects of the deal: What will happen to my staff? Will the business succeed? Will restrictive covenants limit my future? How long will I be liable for post-deal concerns? What happens with the real estate? How will receivables and working capital be treated? etc.
Qualified M&A professionals require potential buyers to disclose their views on all of this and more as a part of the IOI (Indication of Interest) and LOI (Letter of Intent) processes. Understanding how each prospective buyer evaluates these variables and their cumulative effect on the ultimate sale terms and price will ease stress and reduce uncertainty in the courtship and sale consummation processes.
However, sellers must take caution to temper their “demands” and not get overly zealous. Too many “good-for-me / not-so-good-for-you” demands can frustrate a buyer and destroy momentum. The right advisor will help you find the negotiating sweet spot to introduce terms in such a way that control of the process remains in your camp. An experienced advisor will also help immensely throughout diligence and closing.
Weighing Market Forces
When the public market dipped toward the end of 2018, recession talk escalated, and many business owners worried they had missed the peak time for selling their business. Truth is, sellers constantly fret over the possibility of leaving money on the table. This natural instinct often misleads them, causing a paralysis until they actually do miss the peak. Rather than trying to “time the top,” owners should sell when their business is thriving and a buyer can see a clear path to growth and greater prosperity. Attempting to “time the market” is a losing game for most lower middle market businesses. Matching the business with a strategic, synergistic buyer is what actually drives the most value to the selling shareholders.
Life After the Deal
Sellers often find themselves preoccupied with concerns about how their lives will look after the deal: How will I pay taxes? Will I have enough money to retire? How do I maintain health care? Will my company’s legacy live on? What does a successful transition really look like? How will I spend my time?
In many cases, the concern caused by these questions is actually due to the plethora of conflicting advice. When different experts tell you different things, it breeds uncertainty. The best thing to do is to engage an advisor you click with and trust, then work with that advisor to flesh out those underlying concerns that keep you up at night.
Is it Time?
Early in the sale contemplation process, many owners’ concerns hinge around timing: Is the market ideal? Is my business strong enough? Are there benefits to delaying? Owners must assess what is best for themselves and for the business and then must treat the two as the separate matters that they are. Working with an experienced advisor can help you clearly identify your priorities and then use those priorities to construct a winning process - one which culminates in the execution of a successful sale. As in other areas of life, the sale of your business will have a greater chance of success (as defined by you) if you have a clear understanding of what you want to achieve so that you are able to convey to your entire support team what success looks like to you.
Gilbert & Pardue Business Advisors (GaP) is a Houston-based business advisory firm serving lower middle and middle market owners from coast to coast through representation for Mergers & Acquisitions (M&A) and through business value-growth services such as Fractional CFO, Advisory Board, Executive Coaching, and Consulting.
Matt Gilbert and Bret Pardue established GaP to provide owners of lower middle and middle market businesses – those businesses generally enjoying annual revenue of $5-$50 million – with the quality of M&A representation and value-enhancement services previously only available to middle, 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 market provides the quality of representation and transactional expertise that we do.