Selling your company? How to prevent your sales transaction from falling apart?
Chances are, if you are a business owner, you have never tried to sell a business. Most business owners sell their business only once. However, those who are in the merger and acquisitions business know the answer to this question - everyone has had a transaction fall apart. Sometimes it's for good reason. But many times, a delayed, discounted, or dead transaction is very preventable with better seller preparation.
Has any of the following happened to your transactions?
1. Unrealistic (or changing) seller expectations of valuation. Many times sellers do not have an understanding of how valuations are determined. Some look at sales of public companies many times larger than their company; others may receive information from a peer in a different industry; yet others look at revenue without consideration to EBITDA. A few are “sold” by representatives that promise them high valuations in order to secure their business. Going into a transaction with an unrealistic expectation of valuation is a recipe for disappointment, equivocation, and failure.
2. Cold feet - Seller, especially business owner, is not emotionally prepared to sell. Having sold a number of businesses, including being involved with six that I either started or ran, I understand how difficult a decision to sell can be. You’ve built this business, struggled and toiled alongside loyal employees, investors, and managers – spent more time on the business than with your family. And now, the decision to sell? Many business owners do not have a post-sale plan and can be very apprehensive about “what’s next?” It is not unusual for a business owner who is not emotionally prepared to sell, to change his or her mind in the middle – or towards the end – of the sales process, incurring significant costs, stress, and ill-will.
3. Selling company's performance deteriorates during the sales process. Without a doubt, performance erosion during the sales process is the single greatest reason for price adjustments (discounts) or deals falling apart. As a CEO or business owner, selling your business is like adding another full-time job. First-time seller business owners always underestimate the time and energy required to both sell the business as well as maintain the performance “promised” to prospective buyers in your plan.
4. "Stuff happens" - Surprises show up during due diligence. Many business owners have developed customer and supplier relationships on a handshake or fairly informally. While these relationships may have existed for years, you can’t sell a business without documentation. Sales and supplier contracts must be in place, Intellectual property protected, key employees retained, shareholder and legal entity information buttoned-up, etc. Surprises that show up during the process can cause – at best- large amounts of the seller proceeds to be placed in escrow. At worst, due diligence surprises result in price discounts, or in the buyer deciding to walk away.
5. Failure to demonstrate a meaningful strategic growth opportunity to the buyer. Buyers are buying an opportunity to get a return on their investment. They are interested in the future, less about your past. You need to develop and paint a compelling story about the future. A thorough understanding of the opportunities, strategies, possible competitive responses, risks, actions, etc., provide a buyer with enthusiasm about the likelihood of a successful investment.
The business owner seller, while very knowledgeable about their business, has little experience in selling a business. As mentioned, for most sellers, it may occur only once in their lifetimes. As a result, they have a lack of understanding of roles, motives, and behavior of the parties involved with a transaction.
Seller's Advocate. Mead Consulting performs a role with our clients - as the business owner seller's advocate. Our senior consultants have been through dozens and dozens of transactions as both buyers and sellers. We understand the stress involved for the seller. We help clients prepare for the process by working with them in advance to add value by increasing Revenue and EBITDA, strengthening management, working on pre-due diligence, and developing a compelling strategic growth story. Additionally, we walk the business owner through the process, educating them about various aspects of the transaction and the roles of the players, so that there are fewer surprises for them. We assist them in the selection of the appropriate team for their transaction - investment bankers, lawyers, accountants (especially tax). During the sales process we support the transaction team, leveraging the business owner's time, and making certain that key milestones and steps are completed. We keep the business owner and the management team focused on maintaining company performance. When unexpected issues arise during negotiations, we can be a trusted bridge with the business owners helping them see solutions rather than obstacles.
Better advisors refer Mead Consulting to prospective sellers as a Seller's Advocate. The better lawyers, accountants, banks and investment banking professionals see the value that a Seller's Advocate can have to make certain that a deal does not fall apart and the seller maximizes value.
Since many business owners may be unfamiliar with a Seller’s Advocate…..See what Business owner sellers say about Mead Consulting in a Seller's Advocate role.
...We really underestimated what the sales process would be like. Mead Consulting worked with us to prepare the company, helped us with our planning and due diligence, management presentation, coached us with presenting, and helped us navigate throughout the process. ...Steve F, CEO, Financial Services Company
...We missed the opportunity to sell our family business during the last upcycle. Mead Consulting helped us grow revenue and EBITDA to record levels and guided us through the selection of a transaction team. Dave Mead and his group provided great counsel throughout the sales process, removing obstacles and firmly encouraging us to a great deal with a strategic buyer that mirrored our family business values. ...Dan M, President, Building Products Company
...We could not have completed the sale of our business without the advice and guidance of The Mead Consulting Group. Their experience was critical in helping us prepare, and endure, the transaction process to a successful outcome. ...Charles M, President, Healthcare IT Company
...Thank you to you and your team for helping us. You have that unique ability to challenge people without coming across as judgmental or critical, and you forced us to look at things differently. We would not have been able to get to the next level without your help...Mike M, President, Business Services company
...I do not know why anyone would attempt to sell their business without Mead Consulting. They understand the challenges of continuing to run the business while trying to sell it. Their experience kept us focused on the right things and they helped keep our transaction team well-aligned during the process. Making sure that it was the best deal for me. ...Ron T, CEO, Software Business
For more information on our experience and services, please contact Dave Mead at (303) 660-8135 or firstname.lastname@example.org
The Mead Consulting Group helps business owners navigate through a successful sales process, including preparation, selection of the team (investment bankers, transaction attorneys, tax counsel, etc.), and the sale process itself. We focus on maximizing value and leverage the business owner's and management's time so that they can focus on maintaining business performance. Contact us for more information.