When it comes to preparing to sell your business at the middle market level, it’s important to work with an experienced middle market M&A advisor that has the industry specific expertise needed to maximize shareholder value through a strategic exit. While it may sound easy at first thought, selling your middle market business takes meticulous planning and preparation and it all starts with properly crafting the right value story that’s built around the target acquisition candidates.
Our mergers and acquisitions advisors have many years of experience with helping sellers mitigate risks on the sell-side of the transaction and secure the best value when selling a business by avoiding the following mistakes.
INNACURATE INFORMATION – Incorrect information in the CIM (confidential information memorandum) is the #1 reason that causes middle market deals to fall apart. Our middle market M&A advisors always stress the importance of ensuring everything thing in the CIM is 100% accurate. Since the buyers are primarily basing their valuation on the information in the CIM, the seller must be prepared to backup every last detail in the CIM presented to buyers to avoid having the deal fall apart at the last minute. Additionally, offers are not what gets deals closed. Trust and trust alone is the single most important factor that convinces a buyer to actually close the deal and it’s hard to repair the damage if the trust between the buyer and seller gets broken due to incorrect information being presented to the buyer.
NO FLEXIBILITY – Selling your business is a complex process with a lot of moving parts. Since a business is really like a living breathing organism that produces predictable cash flow under the right circumstances, it’s important for sellers to be flexible in discussing deal structure with buyers. Taking the “my way or the highway” approach rarely works well for the buyer as you’ll end up with fewer buyers that are willing to consider the deal. Fewer buyers at the table leads to a less competitive bidding environment, which can seriously impact the final sale price and ultimately the total shareholder value realized from the deal. While there will always be some deal points that are not flexible, our M&A advisors recommend looking for smaller ways to be flexible to show buyers that you’re willing to be reasonable, but without compromising on principles.
NO CONFIDENTIALITY – If you made the decision to sell your business, you’ve probably realized that maintaining confidentiality is crucial to protecting shareholder value, especially when there are employees involved. If your employees know that you’re planning to sell, they might start looking for other jobs, which could materially impact daily operations if enough employees leave. As a result, it’s extremely important that all buyers sign a Non-Disclosure Agreement before revealing the identity of the company and at Smith Holland, that’s exactly what we do. We never disclose the name of the company we are representing until after the buyer has signed our NDA and been properly vetted. Serious buyers will appreciate the need for discretion as buyers understand that maintaining confidentiality is ultimately what’s best for the business, even after the sale has been finalized.
WEAK VALUE STORY – Properly crafting a customized value story that explains the long-term value behind your business and its assets is the main driver behind maximizing shareholder value. With more businesses today being based on technology platforms, it’s even more important that your middle market M&A advisors understand how to value digital assets that can’t easily be quantified compared to traditional FF&E that depreciates over time. Everything from the customer database to the technology website platform itself has value and the Smith Holland deal team has the expertise needed to properly craft value stories for businesses across many different industries.
WAITING FOR BUYERS – Securing the best value when you want to sell your business won’t happen by waiting for the buyers to come to you. Sure, selling a business is likely at the center of your universe, but none of the ideal acquisition candidates are going to know that today’s the big day unless you have the right deal team working on your behalf. At Smith Holland, our middle market M&A advisors take a proactive approach to buyer outreach because we fully understand that the strongest offers often come in as a result of a competitive bidding environment. And the ingredients for creating an optimal biding environment among buyers comes solely from having more buyers at the table. With that said, there must be a delicate balance between driving transaction value through a larger buyer pool and pitting buyers against each other in a manner that resembles a hostile bidding war. Even if this drives up the price, buyers walk into the due diligence phase with the wrong attitude because of the feelings that can come from an auction like bidding process and this can quickly poison the entire deal. Higher offers are great, but with 30 days to actually close the deal after the offer gets signed, 30 days can seem like an eternity, especially if the buyer backs out and you have to start all over again with a new buyer. Targeting the right acquisition candidates with the right message usually yields the right level of buyer interest needed to bring strong offers to the table without the hostility.
While the list above is by no means a comprehensive guide to everything you should avoid when selling your business, it’s just an example of the expert guidance an experienced M&A advisor can bring to the transaction and at Smith Holland Advisors, advising clients on the sell-side of the transaction is all we do.
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