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I’m in the strategy of selling one of our portfolio corporations and desired to share some helpful tricks to make the sale process as smooth as possible. In this text, we’ll focus on the actual selling “process” so you may higher understand what levers you should utilize to get the fastest sale at the highest price.
When is it worth selling your company?
The first a part of the answer to the query of when to sell your corporation has to do with the health of your corporation. If you can’t clearly display revenue and profit growth over the last few years, it should be difficult to sell your corporation at an attractive price. And if something negative is happening in your industry (e.g. COVID-19 impacting restaurant demand), it is best to attend until these external aspects are not a problem.
The second a part of the answer to the query of when to sell has to do with your corporation prospects. Will you be bullish or bearish in the future? If bullish, why sell now? Wait until you have additional revenue and profits before selling. However, if the situation is bearish and you see that the company is able to hit a wall, it’s possible you’ll wish to exit your corporation at the peak before revenues collapse. However, in a typical scenario, a buyer will conduct due diligence on your industry and company and must see a reasonable path to continued revenue growth under their ownership. So in any case, make sure you may easily answer the query of how their revenue will grow in the coming years. Because if you may’t reliably sell that future growth story, they almost certainly won’t have an interest.
The third a part of the answer to when to sell is your personal psychology. Are you drained, bored or burnt out? Perhaps it is time to move on. Working in a team not gives you pleasure and you wish a change? Perhaps it is time to sell. Do you should spend more time with your loved ones or need money for one other project? It’s time to think about selling. So assess where you are personally and this may help point you in one direction or the other.
Who should manage the sales process?
How you sell your company really depends on its size. I’d say that selling the company for a profit of lower than PLN 500,000. dollars is often more DIY because it won’t be large enough to draw the attention of normal business brokers. There are many web sites you may list for sale to assist potential buyers discover your corporation (e.g. BizQuest, BizBuySell, BusinessesForSale.com) for a minimal listing fee. If you go this route, leaf through examples of other business listings to seek out the best content and information to share in your listing. Make sure you have a good lawyer to provide help to negotiate and document the sales contract.
However, if you are larger, it is all the time best to have interaction a licensed and trusted business broker to help you in the sales process and do all the “heavy lifting” for you, including drafting a sales brochure, creating lists of goal buyers, reaching out to such buyers, negotiating the contract and helping you get to the finish line. Business brokers come in all shapes and sizes, often focusing on specific geographic regions, industries or corporations. Therefore, look inside your skilled network or online for the best business broker for your specific situation. Business brokers typically receive a monthly retainer (e.g. $10,000 per thirty days) plus a sales success fee (e.g. 3%-8%), depending on how much expected sales proceeds shall be.
Who should purchase my company?
Typically, there are three forms of buyers: (i) strategic buyers already operating in your industry, (ii) financial buyers who are simply looking for investment opportunities, or (iii) other entrepreneurs looking for latest corporations to operate. Valuations are typically ranked in the same order of listed categories, where a strategic buyer can see more ways to “one plus one equals three” and eliminate synergies. In contrast, financial buyers and entrepreneurs are typically looking for the “best deal” they will get.
Also consider questions equivalent to: (i) Do I trust this buyer to run the business (especially if there are any payments to you involved); (ii) will they keep my team in place or treat them fairly in the event of separation; and (iii) whether or not they have the proceeds of the purchase, each in terms of equity and any mandatory borrowings. As you will learn, not all buyers are created equal, so do your due diligence on them while they do their due diligence on you.
How fast should the process be?
The normal sales process often takes about six months. In the first month, you prepare marketing materials and audience lists. In the second month, you reach these buyers; in the third month you answer questions and phone calls with interested parties; in the fourth month you negotiate the best terms; in the fifth month, the buyer conducts due diligence, and in the sixth month, you receive the sales documents prepared and signed.
Depending on market conditions, this will likely take much longer. If buyers are concerned about the economy or rates of interest, this may reduce the pool of investors interested in continuing the business until these issues are resolved.
How to approach negotiations
Ultimately, “the market is the market.” You may think you are worth one thing, but buyers may let you know something completely different. So be flexible here. If you are attempting to negotiate ten key points, select the most vital ones to handle and be flexible on the rest.
Negotiations are a two-way street and each parties should be completely happy to achieve the finish line. But in all cases, there are a few rules of thumb that I persist with: (i) Your first offers are often the most interested buyers and have the highest probability of constructing it to the finish line, and (ii) time kills all deals – the longer the negotiation process takes, the greater the risk that the buyer will turn out to be frustrated or disinterested and move on. Don’t sabotage your possibilities of success by being inflexible, unreasonable, or too slow.
How much should I expect for a quote?
Valuation is directly proportional to (i) industry, (ii) revenue/profit size and (iii) growth rate. Do you’re employed in a hot industry like artificial intelligence or a boring industry like automobile washes? Are you selling a company with $50 million or $5 million in revenue? Are you growing at 50% per 12 months or 5% per 12 months? All these questions are vital and determine the valuation. So be realistic about what you may reasonably expect by checking out what similar corporations have sold for in the past. For comparison, expect the EBITDA sales multiple, which determines valuation, to be in the range of 3x to 10x EBITDA for revenues ranging from $1 million to $50 million, depending on your answers to a lot of these questions.
Closing your thoughts
Selling your corporation could be an exciting time, but it will possibly even be a daunting process. So surround yourself with experts who have “been there and done that” to provide help to through the process. This includes hiring a good business broker and an experienced mergers and acquisitions lawyer and profiting from mentorship from others who have successfully sold their corporations. If you wish help here, please don’t hesitate to contact us. Good luck!