There is a lot of capital to be deployed in the middle market right now, and a lot of buyers out there ready to leverage it. So, the panel we recently moderated at the Smart Business Dealmakers Conference in Cleveland, Ohio, was the perfect opportunity to hear from business owners who have successfully sold their companies — and to learn what they took away from the experience. Below are some of the key insights our panel shared aimed at helping sellers throughout the deal process.
For a more long-term commitment to your business, consider a family office buyer or strategic buyer, the latter of which is often looking for complementary add-ons to their existing businesses. Private equity buyers generally invest for a three to seven year period before looking to realize a return and exit the business. That is not a negative, as private equity firms can add real value to your company in that time. It just depends on what your business needs.
Buyers don’t always just have monetary goals. Dig into each buyer’s goals and how can they help your company, and how that fits with your goals as a seller and for the business — especially if you’re retaining some ownership.
Management team members in the business have their own goals, too. And while their piece of ownership may not match yours as the owner/seller, the right buyer will be one who aligns with your management team.
Once you find a buyer, squeezing top dollar out of them isn’t always the end goal. If they pay too much of a premium, it could be harder for the new owner to create new value in the business. After all, many sellers say their goal is to leave the business in good shape when they leave so the new buyer can continuing investing in it.
Buyers often make an initial offering knowing they may reduce that price during the diligence process. If you have a sell side QofE report to present the buyer from the start, you can often eliminate many of the negotiating points buyers might try to leverage later on. Also, knowing your financials inside and out from the beginning gives you a clear sense and forewarning to stay in front of any potential issues during the sale.
Investment bankers are incredibly helpful to the sale process. Choose one who knows your industry and the industries of any potential buyers. Get the banker involved a year or two before going to market, not six months before, giving them the chance to really get to know your business. When the sale process begins in earnest, it will start with a flurry of informational requests. Your investment banker will serve as a welcome intermediary between you and potential buyers.
When is the right time to sell? If you sell now, are you leaving money on the table? It’s the big “what if.” Many sellers admit they may have made more on the deal at a later date, but they did what they needed to do for their investors and owners at the time. Trust your investment banker and deal team of consultants so you can be comfortable with their lead in helping you make the timing decision.
There are many things to consider when selling your business and choosing the right buyer. Having thought about all of these in advance (often years) will help ensure the entire process is less stressful and more successful for both the buyer and seller.
Contact Phil Ryan at pryan@cohenco.com or a member of your service team to discuss this topic further.
Cohen & Co is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.