If the entire timeline to sell a business starts when an owner decides to sell his or her business, an oceanic comparison can be made. The entire timeline is an iceberg, many times, the decision to sell is everything below the surface, the largest section! The tip, where M&A advisors and business brokers are involved, where valuation and due diligence comes into play, can be a mere weeks or months compared to the internal battle of deciding to sell one’s hard-crafted company. From start to finish after ‘the decision’ has been made, the journey typically lasts six to twelve months. Of course, the perfect buyer or perfect circumstances can occur. In reality, the six stages of selling closely fall into the following categories:
PHASE 1: OBTAIN AN M&A ADVISORY FIRM (1 TO 2 WEEKS)
It’s common for most sellers to at one point or another have been buyers themselves. Such experience gives them the feeling of being well informed, or in the know, about the selling process. However, no matter what comfort level a seller has with a transaction, bringing a professional M&A will ensure both parties are taken care of. Industry-expertise of an M&A are no match for a seller with one sale under his or her belt, although it is nice to have someone for whom this isn’t the first rodeo.
PHASE 2: FINISH EVALUATION (2 TO 3 WEEKS)
At this point in the process, clarifying expectations with the seller’s M&A team is crucial. Everything from the sales price and financing options should be considered. It is better to plan for these situations than to be taken by surprise when an offer comes in that requires a heart-to-heart conversation about selling strategy. Once the professional evaluation is finished, the M&A advisor will review the various levers involved in the listing price. If the seller is not on the same page, the transaction should not move forward. Both parties need to come to terms with the reality of the valuation, and what the market is willing to offer for the business. At the very least, a seller can move forward with a slightly inflated valuation if he or she understands the levers that will be under the most scrutiny from a buyer and to be ready to reduce the valuation, or negotiate new terms.
PHASE 3: PREPARATION (4 TO 6 WEEKS)
For buyers, dark clouds on the horizon signal the beginning of Phase 3. It is a relatively quiet time, but an impending sense of action is in the air. A seller’s work is nearly done, at this point he or she should be available to help obtain financials and other diligence materials. The M&A team, however, is revving the engine to get up to full speed. The team is synthesizing all documents to prepare marketing materials in advance of the sale. Nailing the prospectus, which will be the main hook for all buyers, remains the goal of Phase 3. A detailed prospectus signals the closing of the preparation stage, although it is absolutely fine to continue to refine data as it becomes available and update materials accordingly.
PHASE 4: MARKETING (1 TO 4 MONTHS)
Generally, the longest stage of the transaction process, marketing the business can range from one to a few months. Market conditions, valuation, and visibility all factor into the outcome of an M&A marketing campaign. The ‘hottest’ time for a deal is right when it goes out for sale. Buyers will go into a frenzy if a company is valued reasonably and the prospectus shows promise for a future owner. This only goes to strengthen the importance of nailing the prior phases of the process, such as accurate financials and a bullet-proof prospectus. First impressions are powerful motivators in the decision process if a buyer comes across a company for sale, it is on the M&A team to present a delectable offering.
PHASE 5: NEGOTIATIONS (2 TO 4 WEEKS)
After the courting process of finding narrowing to a select handful of buyers, it is time to begin negotiations. As reassurance, it is not required to have multiple interested buyers. In fact, one high-motivated seller and one well-informed buyer can come together to transact quickly. Typically, this phase can take a little under a month, especially when hearing offers from multiple parties. It is like the combination of an auction house and car sales, with the M&A team fielding inquiries on deal structure, timing, and financing to find the perfect mix for both the seller and buyer. This stage definitely represents the time when all parties involved need to be on their A-game, and to keep communication flowing. Is it arguably the most difficult phase, but once complete, represents a pivotal change in the deal flow. Once an offer has been secured, it is a sprint to closing. Eyes on the prize.
PHASE 6: CLOSING (2 TO 3 MONTHS)
Bottom of the ninth, two outs, two strikes, the crowd is on edge. Whatever analogy suits Phase 6 best, it is all about closing out the deal. With an offer in hand, both the seller, buyer, and M&A team are a transacting symbiote aiming to complete a change of ownership. Even though all parties are moving swiftly to the end of the marathon, this stage is not necessarily the shortest or easiest. Due diligence is a make or break part of a deal, but it doesn’t begin until Phase 6. Again, the importance of auditing documents and financials prior to marketing remains paramount. Best case scenario means due diligence goes without a hiccup. Large transactions naturally take more time - more documents and more checkboxes, more outstanding issues that need to be vetted in the buyer’s mind. Some major hindrances to the closing stage manifest in the form of poor financials, inaccurate licenses or compliance documents, or simply lack of funds to transact. All of these can be investigated and flagged by the M&A team prior to this stage.
Now that we’ve identified and walked through the tentpole stages of the selling process, it becomes clearer how important preparation can be. Much like an athlete preparing for the championship game, success in selling depends on a season’s work of practice and development. Seller’s who get too excited about the prospect of cash in their hand, or excited about the prospect of another venture, often find difficulties in the deal process. This is because they mentally checkout-out of operating the business, and as a result, company performance has declined. It is imperative to maintain discipline and hold firm emotionally to keep the business producing at historical levels. This will ultimately drive up buyer confidence, valuation, and the probability that an M&A transaction will take place. One might feel like King or Queen of the world after making the titanic decision to sell, but don’t lose sight of the icebergs floating out there, there is still work to be done to steer the deal home!
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