2019 Was Another Very Good Year for Business Transactions

The following information has been provided by BizBuySell.com –the largest business for sale marketplace online, receiving over a million visitors a month.

In total, 9,746 closed sales were reported by brokers in 2019, a 5.5 percent decrease from the 10,312 deals reported in 2018, which set the BizBuySell record for most transactions. While full-year activity slowed compared to 2018, 4th quarter transactions bounced back to positive growth and it’s important to remember that levels remain historically high.

Some additional statistical data that you may find of interest.

The median revenue of a sold business in 2019 was up seven percent from 2018, and the median cash flow was up two percent from 2018.

These financials represent the highest annual revenue and cash flow since BizBuySell started measuring this data in 2007. While 2018 set the record for most transactions, 2019 has been characterized as having the most financially strong business transactions.

More than 1,300 transactions had an asking price of over $1 million. Those businesses tend to take longer to sell, averaging 15 more days on the market than others, but the reward is well worth it. Owners who were able to show such strong business performance earned 93 percent of their asking price and received significant value for their high financials. In fact, these businesses earned a .90 revenue multiple and 3.66 cash flow multiple, both significantly higher than the .59 revenue and 2.35 cash flow multiples received by all businesses.  The average time to sell a business was ~6 months from the time of listing to being placed in contract.

The Dallas / Fort Worth Metro area ranked 5th in the total number of transactions during the year, and experienced a 24% increase over 2018!

Market Outlook

2019 marks the third straight year of high transaction activity after a noticeable spike from 2016 to 2017. While 2020 is not without questions, we still expect this level of activity to continue, in part due to the ongoing supply created by retiring Baby Boomers. According to a recent BizBuySell survey of business brokers, 75% expect more Baby Boomers to sell their business in 2020 than did in 2019.


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Why You Should Fire Yourself

If you find yourself in a position where your customers always insist on speaking with you directly instead of your employees, then you might want to consider shifting your structure so you can improve the value of your business.

Here’s why: a business that can thrive without the owner at the center of all its operations is more valuable because processes can run smoothly with or without you. If you’re too stuck in the weeds, you’ll have a difficult time improving or evolving – and your employees won’t have the opportunity to grow and become advocates for your brand.

To maximize the value of your business, you should set a goal to quietly slip into the background and let your staff take center stage. Here are five ways to make customers less inclined to call you:

1. Re-rank

If you display the bio of key staff members on your website, re-order the list so that it is alphabetical rather than hierarchical.

2. Re-brand

If your surname is in your company name, consider a re-brand. There’s nothing that makes a customer want to deal with the owner more than having the owner’s surname featured in the company name.

3. Hire a President

Giving someone the title of president conveys the message that they have real authority to solve customer problems.

4. Use an email auto-responder

Tim Ferriss, the author of The 4 Hour Work Week among other books, made the email auto-responder famous, and it can serve you well. Set up an automatic response to anyone sending you an email explaining that you are travelling or attending to a strategic project and unable to answer their questions immediately. Instead, train customers to direct questions to the person best suited to answer them quickly.

A word of caution using this strategy: if you continue to answer customer emails after setting up an auto-responder, it’s going to become transparent that you’re just trying to hide behind your autoresponder, which could diminish your credibility. If you set one up, you need to be ready to let others step in.

5. Play hookey

If you have the kind of business that customers visit in person, set up a home office so you can spend more time away from your location.

For a hard-charging A-type entrepreneur, the steps above can be complicated and feel counterintuitive. They may even have a short-term negative impact on your company’s sales, but once you get your customers trained to go to your team, you’ll be able to scale up further and ultimately maximize the value of your business.


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What Buyers Look For In A Business Opportunity

by Peter C. King, VR Business Brokers/Mergers & Acquisitions, CEO

You have built a great business with love and care. It has grown larger than you’d ever imagined, and generates a nice profit that has allowed you and your family to live comfortably. Now you’re ready to sell. You assume there’s a buyer out there who will pay you a fair price and then nurture the company with the same attention you have. What’s more, selling the business is a major part of your retirement plan.

Needless to say, buyers look at businesses differently than sellers. So to achieve the outcome you want, it’s important to think like buyers and understand how they evaluate a business.

What Buyers Look For?

There are many types of buyers: strategic and financial, individuals, companies, and private equity funds. Despite differences, all buyers consider how much they’ll invest to acquire a business, the amount of risk they’ll bear and the potential return on their investment. To evaluate an opportunity, buyers focus on three major areas:

1. Cost and terms
What will it take to acquire the business? How much cash and how much debt? What are the deal’s terms and conditions?

2. Continuity
Will the business continue to operate similarly after the sale? Much of the risk of buying a company relates to continuity. For example: The current owner has personal relationships with
customers, distributors or vendors that the new owners may have to struggle to maintain, the owner has special expertise that is undocumented and difficult to learn, Key personnel aren’t committed to staying, or outside competition looms. Sellers armed with solid responses to these types of continuity concerns are more likely to get their desired price. Even if you don’t want to sell your business for a few years, take steps now to ensure it can run smoothly without your personal involvement. That independence could be worth millions when you sell.

3. Growth
Are there unexploited opportunities? You may have focused your sales efforts in one geographic region, but there may be many opportunities to take the product national or international. A buyer that believes it can increase revenues substantially will pay more for the business than one that believes the current owners have already maximized opportunities. What sellers should do?

It may seem counter intuitive, but the things you may be most proud of can work against getting the best price for your company. Not many entrepreneurs like to boast that their company could run just fine without them or that there are plenty of opportunities they’ve failed to exploit. Yet these may be the very factors buyers seek, along with lower cash requirements. Please call us for help in understanding how to best present your company for sale.


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Reality Check – What is Your Business Really Worth?

This is the age-old question that just about every business owner asks themselves at some point – and of course, the short answer is “whatever someone will pay you for it”!

I’ve been dealing with business owners for over 30 years and many owners feel their business is worth considerably more than the market suggests it is. Occasionally, I find an owner who has under-estimated their business value, and it is very pleasing to inform them that I think we can get more for their business than they anticipated.

How should you determine a realistic value for a business – the answer is “statistics”! While there are multiple formulas that can be used to complete a business valuation, in the end, statistics from past transactions will be a major part of the process and will usually provide considerable influence on a buyer’s ultimate decision.

DealStats (formerly Pratt’s Stats) is a platform that boasts the most complete financial information on acquired companies in both the private and public sectors. Every transaction in DealStats is rigorously reviewed by a dedicated team of financial analysts in real time. Whether you are valuing a business, deriving a sale price, benchmarking performance or conducting fairness opinion research, you won’t find more complete and trustworthy comparable data in any other source.

DealStats reports on a quarterly basis cumulative results of this extensive analysis, providing users with the most current information available on business transactions. Additionally, as a user of the software platform, VR Business Brokers of Dallas can access specific transactional data to find comparable transactions to one we may be valuing at the time. We are also able to eliminate “outliers” on both extremes of the value scale to ensure a realistic assessment.

We have provided below summary information by DealStats on transactions reported as of the 3rd quarter of 2019. The statistics reported are based on the “Median” value within each sample grouping.

Annual revenue

Final Selling Price

$0 to $1M
$1M to $5M
$5M to $10M

3.50x EBITDA, or 2.0x SDE as reported
4.10x EBITDA, or 2.8x SDE as reported
4.20x EBITDA, or 3.7x SDE as reported
6.70x EBITDA, or 4.0x SDE as reported

EBITDA – Earnings before interest, taxes, depreciation, amortization

SDE – Sellers Discretionary Earnings using industry standard add-back principles. This process is also referred to Normalized EBITDA.

The above results are inclusive of transactions within all industries and are based on privately held company transactions only.

As mentioned, the selling price multiples represent the “Median” value, and as one may expect, within each sample grouping there are significant ranges of multiples achieved, both from the EBITDA as well as SDE assessment. So, what are the most common factors that affect the ranges of multiples achieved?

Level of EBITDA or SDE attained – as a general guide, the higher the EBTIDA and or SDE attained above the median level within each grouping, the higher the multiple to be realized as the final sales price.

Trends in revenue and profits – businesses that have positive trends in revenue AND profits will generally attain a higher multiple than a business with equal or even slightly higher EBITDA or SDE but is experiencing negative trending.

Maturity of the business – as a general guide, a business with longevity of several years will attain a higher value for similar performance than a business that is only two to three years old. Additionally, buyers will look at the “average” performance over a two to three-year period rather than only focusing on the most recent annual performance. The point is that as a seller of a relatively new business, don’t expect a huge “spike” in your most recent year to result in maximum value for your business based solely on that year. There are exceptions to this – such as technology related companies with a recurring revenue business model.

Quality of Financial Accounting – the “cleaner” the books, the easier it is for a buyer to evaluate the business, therefore usually resulting in a higher valuation. And remember, there are likely two audiences assessing the Accounting quality – the buyer and the banker! The quality of financial accounting can be a major factor when it comes to attaining bank financing for the transaction.

There are many other factors that can affect the valuation of a business – condition of asset base, quality of management team, employee tenure, diversified customer base, industry training availability, just to name a few.

VR Business Brokers can assist you with the valuation of your business. Whether you are considering selling your business now, or several years in the future, it is important to understand the factors involved that can affect the overall value. We will help you assess EBITDA and SDE and guide you on the other elements that will affect the overall value of your business in the future.

About VR Business Brokers, Dallas, TX

VR Business Brokers of Dallas is part of the worldwide franchisor organization that has been servicing small to medium size privately held companies since 1979. VR Business Brokers of Dallas has handled transactions for privately held businesses with revenue ranging from $200,000 to $60,000,000 and assists business owners with exit strategy planning, business valuations, packaging and marketing of the opportunity, and full negotiation services through to closing. For more information about VR Business Brokers, please call 214-733-8282, or visit www.vrdallas.com.


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Middle Market Business Growth Projections on the Decline

Article written by Meghan Daniels and provided courtesy of Axial.net

At the end of last year, an all-time high — 73 percent — of middle market company executives reported that their company’s overall performance exceeded that of last year, according to the National Center for the Middle Market. In Q3 2019, that number was 60 percent, down from 68 percent in Q2, according to the organization’s Q3 2019 Middle Market Indicator report, released last week.

This figure is indicative of the report’s overall findings — while performance is still relatively solid among middle market organizations, growth rates are declining, hiring rates are slowing, economic confidence is wavering, and companies are adjusting their expectations for expansion in the coming year. “Overall, leaders appear to be taking appropriate steps and hedging their bets for the time being, perhaps responding to growing national and global economic uncertainty. As attitudes and behaviors shift toward conservatism, many leaders are focusing internally on ways to cut costs and drive efficiency to ensure they are prepared for whatever the coming months bring,” according to the report.

Here are four takeaways from the National Center for the Middle Market’s Q3 report. For more, read the full report.

1. The percentage of companies adding jobs dips under 50% for the first time in 2.5 years:

For the past 2.5 years, more than half of middle market companies reported adding jobs, vs. 46 percent of companies this quarter. Year-over-year employment growth also fell this quarter vs. Q2 2019, from 6.4 percent to 4.1 percent, and the projected rate of growth for the next year is only 2.5 percent — the lowest number since 2014. Companies with annual revenues under $100 million were less likely to have added jobs than those with revenues between $100 million and $1 billion.

2. Middle market leaders are confident in their local economics — the global economy, not as much:

While 81 percent of middle market executives remain confident in their local economies, the figure for the global economy is much lower at 55 percent. This reflects a major decline from Q1 2018, when the figure was 82 percent. Confidence in the U.S. economy was 76 percent this quarter — lower than the five-year average of 79 percent.

3. Talent management is a persistent challenge:

Even as company’s hiring plans become more modest, today’s middle market companies struggle with retaining workers given low unemployment rates and persistent skills gaps, particularly in certain sectors. According to the report, 55 percent of companies cited talent management as a pressing short-term challenge and 46 percent as a long-term concern.

4. Nearly half of companies are consciously tightening their purse strings:

Forty-six percent of executives said they had “accelerated cost-cutting and efficiency efforts in the last six months.” This is likely tied to declining hiring rates and may lead to a decrease in raises for existing employees as well. In addition, “this suggests that bosses may be more Scrooge than Santa when merit increase time rolls around,” according to the report. These cost-cutting efforts come amid a widening gap between cost and profit expectations — this quarter, middle market executives reported their profit margin growth over the next year as 1.7 percent, compared to reports of 3 percent throughout 2018 and earlier this year.

The data seems foreboding — “this quarter’s report shows the biggest one-quarter drops in revenue and employment growth in the eight-year history of the MMI,” notes the study’s authors. However, they also note “it’s important not to make too much of these downward-pointing numbers,” as they only reflect a quarter’s worth of data and may prove to be an anomaly. Tracking growth and hiring, investment activity, and executive sentiment over the coming quarters will help determine whether this data is an outlier or a true reflection of economic softening.


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Ownership Has Its Privileges

Walk down Nashville’s Lower Broadway any night of the week, and you can hear aspiring artists belting out cover tunes from Elton John to Garth Brooks.

In many cases, these musicians come to Nashville to be discovered but pay their rent using the tips they get by playing other people’s songs. Most are lucky to eke out a modest living while the stars they impersonate run thriving empires.

Forbes estimates[1] that Luke Bryan, country music’s highest-paid star last year, earned 52 million dollars on the back of his stadium tour and duties as an American Idol judge and Chevy spokesperson.

What’s going on here? Is Bryan that much more talented than the dozens of artists playing his songs in Nashville every night?

Probably not.

The difference comes down to who controls the product. In Bryan’s case, he owns the music and the personal brand he has created to perform it. The cover artist is just reselling his stuff.

The Value Of Your Brand

The music business can be a helpful analogy in explaining why creating a unique brand is such a big contributor to the value of your company. Acquirers want what they could not easily copy. If you’re reselling other people’s products and services, an acquirer will likely argue that there are probably dozens of competitors driving down your margin next to nothing. Further, they may even conclude that they too could earn a license to resell whatever you’re distributing and will, therefore, place little value in the company you’ve built.

However, if you have something exclusive – a unique product or brand that makes people believe what you do is different – an acquirer will pay more, arguing it is difficult to reproduce what you have created.

If you find yourself reselling other people’s products or services, you can still drive up the value of your business by creating a brand around the way you do it. You could argue that Peloton is just selling a stationary bike. Still, it is the unique company they have created around the bike –including the community of riders that subscribe – that has recently driven Peloton’s value north of $7 billion (almost eight times trailing twelve months revenue at the time of their recent Initial Public Offering).

To drive up the value of your company, own the stuff you sell. If that’s not possible, create a unique brand that makes consumers feel as if you do.

[1] http://www.nashcountrydaily.com/2018/08/14/forbes-list-of-the-highest-paid-country-stars-of-2018-includes-luke-bryan-garth-brooks-kenny-chesney-more/


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Middle-Market Dealmaking Continues to Outperform

Article written by Danielle Fugazy and provided courtesy of Axial.net

Middle market deal activity in the first half of 2019 is on pace with 2018’s record-setting figures in respect to both deal count and value. In Q2 2019, buyout shops closed 866 deals for a total of $124.2 billion, representing a year over year increase of 12.9 percent and 15.8 percent, respectively, according to Pitchbook Data.

The middle market continues to dominate the private equity sector. Middle market private equity deal activity (deal sizes between $25 million and $1 billion) comprised 82.4 percent of all buyouts in the U.S., marking five consecutive years. The middle market also made up 69.2 percent of private equity deal value in the first half, higher than any full year figure since 2014, according to Pitchbook.

Add-on acquisitions remain popular among middle market private equity firms looking to add value. In the first half of 2019, add-ons made up 59.5 percent of deal value as well as 68.8 percent of deals closed in the middle market.

“Private equity in the lower middle market remains vibrant and active. Riverside has seen a record pace of deal flow this year, especially in the lower end of the middle market where we focus our investing,” says Jeremy Holland, a managing partner at The Riverside Company. “Entrepreneurs have a plethora of choices today, whether it be full liquidity or growth capital. We are offering an array of private capital solutions to entrepreneurs, including non-control solutions such as structured equity and non-dilutive growth capital to B2B SaaS companies. It’s what makes sense today.”

Surprisingly, exits showed a decline in the first half of 2019. In the second quarter, middle market exit activity saw GPs exit 176 companies for a combined value of $31 billion—a decline of 19.4 percent. Although exits were down overall, there were five private equity-backed IPOs in the second quarter. The largest middle market exit of the quarter was Change Healthcare’s $557.1 million IPO, which had a valuation of $981.2 million. The company was initially taken private by The Blackstone Group and Crimson Ventures in 2011. In 2016, the company was merged with McKesson’s technology solutions business. What’s more, Pitchbook anticipates an uptick in IPO activity and corresponding IPO value going forward.

“We all know that add-ons can lower blended purchase price multiple and add scale, and they remain one of the most powerful levers into not only building bigger but better companies. Add-ons offer geographic balance as well as supplier and customer diversity. And oftentimes, they add intellectual property such as brands and patents. Perhaps most importantly, add-ons can bring tremendous human capital adding depth to our management teams,” says Holland.

Middle market fundraising figures were down in the second quarter, with $17.2 billion raised across 19 funds. Fundraising value in the first half of 2019 declined by 19.5 percent from the first half of 2018. Nineteen funds raised in Q2 is the lowest quarterly figure since Q3 2012. Some of the more notable funds raised include Silver Lake’s first mezzanine fund, Silver Lake Alpine Funds, which closed with $2.5 billion and is focused on making non-control equity and credit investment in technology and technology-enable companies. One first-time equity fund closed in Q2, Gainline Capital Partners, which held a final close with $155 million in May. Grain Communication’s Opportunity Fund II also closed during the quarter with $900 million. The firm focuses on investments in the global communication sector.

Middle market funds are a declining portion of all U.S. funds in terms of value as mega firms swell in size.


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What to Expect in an M&A Letter of Intent

Article written by Meghan Daniels and provided courtesy of Axial.net

The letter of intent (LOI) is an important step in most M&A transactions. The LOI allows buyers to signal that they’re serious about a potential deal and to make sure that their vision lines up with the seller’s before they spend significant resources on a full due diligence process.

Here are the answers to four frequently asked questions about the LOI.

1. What does the LOI include?

A letter of intent serves in some ways as a preview or summary of the deal terms that would be expected to appear in the purchase agreement down the line. LOIs typically vary in length from about two to 10 pages, depending on a number of factors. Some argue a shorter LOI can help speed up the negotiating process as it centers the conversation around the most important elements of the deal: if there’s not agreement there, the logic goes, there’s no need to discuss other factors. Others prefer to address all potential issues upfront to avoid any surprise dealbreakers later on.

Here are some of the typical terms you’ll see in an LOI, though of course this varies depending on the deal.

  1. Deal Structure: Is the transaction a stock or asset purchase?
  2. Consideration: What are the forms of payment? This can include cash, stock, seller notes, earn-outs, rollover equity and contingent pricing.
  3. Closing Date: What is the projected date for closing the deal?
  4. Closing Conditions: What are the tasks, approvals, and consents that need to be obtained before or on the closing date?
  5. Exclusivity Period: This is typically a binding clause requested by the buyer, who wants to ensure that sellers are negotiating in good faith. It’s typical for buyers to request an exclusivity period from 30-120 days, while sellers will typically want as short a period as possible.
  6. Break-up Fee: This clause is also typically binding, though break-up fees are less common in the lower middle market. In larger deals (>$500MM), break-up fees of approximately 3% are typical.
  7. Management Compensation: Which members of the senior management will stay on? Who will be provided equity plans? This aspect of the deal may be vague at the LOI stage before due diligence has been conducted.
  8. Due Diligence: How will due diligence will be conducted? This includes the nature of information that will be disclosed and the manner in which it will be disclosed.
  9. Confidentiality (Binding): Both parties have likely already signed an NDA earlier in the process, but this clause further ensures that all discussions regarding the proposed transaction remain confidential.
  10. Approvals: Does the buyer or seller need any approvals (e.g., from a board of directors, regulatory agencies, customers) to complete the transaction?
  11. Escrow: This may not appear until the purchase agreement, but sometimes the buyer will include summary terms of their expected escrow terms for holding back some percentage of the purchase price to cover future payments for past liabilities.
  12. Representations and Warranties: This also may not agree until the purchase agreement, but if there are contentious or non-standard terms the buyer may include them in the LOI.

2. Is an LOI binding?

LOIs are generally non-binding, though sometimes there will be terms that are specifically called out as binding, e.g., exclusivity periods or break-up fees. It’s important to note, however, that in certain cases courts may interpret letters of intent as binding documents if the buyer and/or seller treats it as a contract. Still, sellers shouldn’t expect that the terms outlined in the LOI will necessarily be the final terms offered by a buyer. Buyers are looking to portray themselves in the best possible light at this point in the deal process, and have not yet conducted full due diligence and therefore don’t have a complete sense of the business’ risk factors that may impact their ultimate purchase price and terms.

3. Are LOIs mandatory?

No. It’s not unheard of for buyer and seller to skip over the LOI and go straight to the purchase agreement. However, an LOI can be useful for a number of reasons. It helps ensure that buyer and seller have similar (or at least similar enough) expectations around deal structure, scheduling, and other big concerns. It also means that any potential deal-breakers come up earlier in the process, so that the parties can either a) stop the transaction process before significant resources are spent on due diligence and drafting deal documents or b) figure out a resolution sooner. The letter of intent also is a nice way to ensure that seller and buyer are on the same page about how due diligence will be conducted. In addition, the LOI’s terms serve as important protection for all parties in a deal (e.g., exclusivity periods product buyers, while break-up fees protect sellers). Creating a shared vision of the future transaction means that there are fewer unpleasant surprises down the line and can make the overall deal process run a lot more smoothly.

4. What happens after the LOI is signed?

The next stage is typically due diligence. The buyer may have been conducting informal due diligence already, but the formal process begins now, and the seller will be expected to provide detailed financials and customer information along with other requested materials. These findings will inform negotiations down the line as buyers aim to lower their risk and sellers look to optimize purchase price and terms. At the same time that buyers are conducting due diligence, they also begin to plan for integration — doing so early on helps buyer and seller think through potential roadblocks and concerns and address those prior to the deal close. The final stage, of course, is drafting and signing the purchase agreement, which may require significant negotiation to get to a place where both buyer and seller are comfortable.


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Being Stingy With Your Equity

It can be tempting to offer shares in your company to finance its growth. These days, there are plenty of investors chasing promising new companies and, in today’s tight labour market, employees are getting more brazen in their demands for equity-based compensation. However, using equity as a form of currency dilutes your position and may not be necessary with a pinch of creativity.

How David Hauser Bootstrapped His Way To a 9-Figure Exit

David Hauser has been an entrepreneur for most of his life. He had a number of small money-making ventures in high school and studied entrepreneurship at Babson College. He started a web design business after graduation, followed by an internet advertising company.

Through his early experiences in entrepreneurship, Hauser discovered that one of the most frustrating parts of starting and growing a small business was acquiring a phone system. Back in the late 1990’s, big companies used a PBX system to route calls throughout a switchboard, but a PBX system was prohibitively expensive for most small companies to acquire and maintain.

Hauser and his friend Siamak Taghaddos imagined a “virtual PBX” which allowed small business owners to leverage the internet to create a phone system without having to buy any of the hardware. They built a crude version of the technology, named their new company GotVMail (later rebranded as Grasshopper), and launched in 2003.

By 2004, they had acquired their first few customers and could see that in order to scale they would need to buy servers and a lot of advertising to drive demand. The venture capital markets were starting to thaw after the dot com bust of 2001 but Hauser chose not to raise venture capital. Instead, they clung to their equity and bootstrapped their little business.

Instead of ordering servers from Dell, Hauser found a local computer company and sold it on his vision for the future. Hauser asked the owner to make a server for him below cost arguing that if Grasshopper achieved its vision, Hauser would soon buy many more. When Howard Stern moved his show to satellite radio, Grasshopper offered to support Stern’s new medium in return for major concessions on the price of a commercial.

Grasshopper also offered discounts if customers paid for a year’s worth of service up front, effectively turning its customers into financiers of the business. Despite its growth from start-up to $30 million in revenue in just 12 years, Hauser was able to retain the majority of the equity in his business, which he sold to Citrix in 2015 for $165 million in cash and $8.6 million in Citrix stock.

As the story of David Hauser illustrates, owners who focus on value building will guard their equity like a greedy child hoarding a bag of Halloween candy. Rather than selling their friends and family cheap shares or giving every new employee options, they use other forms of financing to start and grow their business.

Rather than thinking of your shares as a currency to distribute lavishly, consider your stock as the essential ingredient to building value.


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You’ve Received an Unsolicited Offer to Buy Your Business — Now What?

Article written by Ari Fuchs of The DAK Group and provided courtesy of Axial.net

Nearly 1 in 3 business owners report receiving an unsolicited offer to buy their business in the prior twelve-month period. If someone approached you with an offer to buy your business, would you know what to do? You’ve probably said to someone, or thought, something along the lines of “my business isn’t for sale, but for the right price I’d consider it.”

You may be flattered because the number may be higher than you imagined, and you may respond positively. But how do you know for sure? Even if your first reaction is a resounding “yes,” and you want to start the process, is that the prudent approach? It’s unlikely that you would ever make a decision about your business with information from only one source.

There are a number of questions to consider. What is your business worth? What is the right price for my business? What are similar businesses selling for? Could there be other interested buyers out there? How do you negotiate a better deal? What kind of partner will this company be? What do I want out of my business anyway at this point?

Business owners will be tempted to begin the process on their own for many reasons.. It’s certainly do-able to take the DIY approach. But the primary risk associated with going it alone is that you get in over your head in a short period of time. A sale process is a substantial undertaking which can often be overly distracting to the ongoing growth and success of your business. What is likely the largest financial decision of your life is not a time to learn on the fly. Often the acquirer has gone through the process many times – they are perhaps experts at doing deals and sometimes speak a different language than the business owner. It is for these reasons that a business owner might consider assembling a team of experienced advisors to assist throughout the process and to help evaluate the situation. Usually, this team is composed of an M&A advisor, your lawyer, your accountant, and possibly a wealth manager.

If you decide to assemble a deal team to help you with the process, here are four things your team of advisors will help you with:

1. Figuring out if the offer is fair and reasonable

Your M&A professional should be able to help you understand the value of your business and consequently whether the offer you received is fair and reasonable. The specifics of your business can really impact its value, making it important for you to understand the way an investor is evaluating your company’s worth. If the acquirer is strategic, then you need to understand how your business will impact the value of their business to negotiate the highest possible purchase price and most favorable terms. Even if an initial offer is deemed fair and reasonable, your investment banker should help you maintain the upper hand and push a buyer to give you the best value and terms by threatening or even proceeding to create a competitive bid process. The presence (or even threat) of another buyer may push the acquirer to adjust their offer.

2. Managing the flow of due diligence information

It’s important to employ good judgment about what information you share. How can the information be best positioned to amplify the strengths of my business? At what stage should you be sharing sensitive competitive information about customers and employees? The answers to these questions can have serious implications on how a buyer views and values the business.

3. Negotiation technique and approach

Repeat corporate or private equity buyers are generally experienced negotiators. How can you ensure that you’re not being out-negotiated and leaving money on the table? This is where high quality M&A advisors can earn their fee. The banker can also play the role of bad cop when you need to be insulated from a difficult negotiation point to ensure that you preserve the principal-to-principal relationship with the buyer. This is particularly relevant if you expect to play an ongoing role in the management of your business post-closing.

4. Allow you to focus more time on running the business.

Selling your business is time consuming for a business owner even when they have a good deal team supporting them. Without a deal team, it can become all consuming. Having the capacity to focus your time on running your business during a sale process better ensures the likelihood of a closed transaction. When businesses underperform during a period of scrutiny like this, it can break the deal.

The sale process — from negotiating and accepting an offer, getting through due diligence, and finally closing — has its ups and downs. You can benefit from experienced advisors in the process to act as a sounding board and to provide you with coaching and recommendations throughout the process.

Whether you are considering selling your business now or at some point in the future, you should always be prepared for that phone call and have a plan for how you will respond. Understand the value of your business in today’s market. Be aware of what enhances or detracts from the value of your business. Work with advisors who are knowledgeable and can help you navigate through the process of qualifying and validating a buyer.

You have invested years, possibly decades of your life building a successful business. When the time comes to sell the business, being prepared matters.


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