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Selling A Company


Goofyboy

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I do strategic, operational, and m&a advisory consulting for tech companies and small businesses. I’ve run multiple companies over 25 years and have bought and sold many. Based on what you’re looking for I could either help or point you to the right people to help. I’m finishing an m&a deal this week. 

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M&A attorney here. Deals ranging from $500k to $100m as first chair. Second chaired many higher. 6-8 per year usually.  In the middle of one that should close in January, closing another, starting one for first quarter next week, closed one week after Thanksgiving. I’ve bought and sold my own 4 times. Happy to chat even if there’s no work or it’s not a good fit. Lemme know.  Plenty of expertise in this community. Dbeasy sounds like a rock star.  T’boone has recently bought a company and he’s got prior experience on the advisory side. No need to chat with only one of us. 

Edited by troph
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I’ll put some info together and message ya’ll.

Long and short of it is my wife and her brother are looking into selling the family business. Their father has introduced them to a broker (I think), but I don’t know if what he is asking for is reasonable.

I just want some second opinions and possibly another option to work through this.

Thank you for the help - this is really new territory for us.

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15 hours ago, troph said:

M&A attorney here. Deals ranging from $500k to $100m as first chair. Second chaired many higher. 6-8 per year usually.  In the middle of one that should close in January, closing another, starting one for first quarter next week, closed one week after Thanksgiving. I’ve bought and sold my own 4 times. Happy to chat even if there’s no work or it’s not a good fit. Lemme know.  Plenty of expertise in this community. Dbeasy sounds like a rock star.  T’boone has recently bought a company and he’s got prior experience on the advisory side. No need to chat with only one of us. 

 

16 hours ago, Dbeasy said:

I do strategic, operational, and m&a advisory consulting for tech companies and small businesses. I’ve run multiple companies over 25 years and have bought and sold many. Based on what you’re looking for I could either help or point you to the right people to help. I’m finishing an m&a deal this week. 

You guys have to be pretty dang good to stay busy-- M&A was at a 10 year low this past year (and IPOs at a 15 year low). Lots of finance and bankers got a pittance of a bonus. Thems the cycles, I guess.

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1 minute ago, tigol said:


Let me break out my tiny violin.

Agreed, no pity from me for Wall St. I'm just saying because it sounds like, in a historically down year, troph has been super busy with deals coming out of her ears and dbeasy is active as well, which probably means they are dang good at this stuff.

Edited by BeardIP
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18 minutes ago, BeardIP said:

 

You guys have to be pretty dang good to stay busy-- M&A was at a 10 year low this past year (and IPOs at a 15 year low). Lots of finance and bankers got a pittance of a bonus. Thems the cycles, I guess.

Big firm expertise for about half the cost. I'm a former big law (Texas based firm), my top lawyer helping me (read: does all the drafting) is a former latham/wilson sonsini attorney. I think we are pretty good.

I think our work may slow down second quarter next year though. I was honestly surprised how busy second half of the year was for us.

I had one die this fall, another die twice before coming back (hence closing in January). Two of mine in the 4th quarter were work outs/turnarounds. first quarter deal is structured for the buyer so well it's ridiculous (we leveraged that to negotiate all key legal issues to our advantage in the LOI). no one is happy with the purchase price, even those that are not work outs/turnaround. valuations are lower, mostly due to interest rates and separately the lending environment.

Edited by troph
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14 hours ago, Chewbacca said:

What multiples are folks seeing for service businesses these days? Partners and I thinking it's getting close to selling time.

Without knowing more, I wouldn't expect more than 4x-4.5x EBITDA right now (note all the deals on my desk were priced 3-6 months ago). It could be lower depending on a whole host of factors (size, condition, founder dependent, 2024 outlook, etc). You might expect more from a strategic buyer (case in point we are 1-1.5x higher with a strategic buyer than what PE firms offered on a deal right now (not a service company, multiples were/are higher)). there will be industries and individual companies that can drive a multiple higher but don't bet against the law of averages unless you have clear indication you are an outlier.

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I'd like to know size and how great that 10x company is knowing you are in residential services businesses....  I'm selling a manufacturing company in a sought after market segment for 7x right now.  and chewbacca may be in a niche market that could drive multiples up so that's entirely possible.

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4 minutes ago, troph said:

I'd like to know size and how great that 10x company is knowing you are in residential services businesses....  I'm selling a manufacturing company in a sought after market segment for 7x right now.  and chewbacca may be in a niche market that could drive multiples up so that's entirely possible.

We offered 10X on $10MM Adjusted EBITDA and were 2-3 turns short on Total Enterprise Value.  $47MM in Annual Gross Revenue.  

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As you guys know, the multiples depend on how good the company looks when it reaches out to potential buyers. A poorly prepared company will sell for a terrible multiple, or not sell at all. A well-prepared company can get a big premium. I usually tell owners to spend 12-24 months addressing the ugly parts of their business with strategies and operational initiatives to make themselves more attractive at sell time. 

More often than not, by the time someone brings me in to help them prepare, they don't have enough runway time to do it well. It's pretty unfortunate. They spent all these years building a pretty good company, but didn't put in the same effort to dress it up. I worked with one company a few years ago who did take the time (27 months), and we were able to triple their valuation. The investment bankers love to have someone like me come in to help them prepare because it makes their job easier on the sale, and at a much higher multiple.

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what he said. also multiples go higher the larger the business (assuming higher EBITDA).  deal that fell through a few months ago (not the one that came back) was lost at 8x on around $20-22M in gross sales, don't remember EBITDA, and about 1/3 of the purchase price was rollover equity.

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19 hours ago, Chewbacca said:

What multiples are folks seeing for service businesses these days? Partners and I thinking it's getting close to selling time.

The Three ‘scientific’ approaches to valuation as there are three main schools of valuation theory

a) Discounted Cashflow

This one is for the purists. The total of the future expected cashflows of a business discounted back to ‘today’s money’.

b) Multiples of a Metric

This starts with a metric that represents the future cash potential of the business. And then a multiple gets applied to it. That multiple is from a range justified by previous transactions (comparables).

c) Asset based valuations

Options a & b are both ‘earnings’ or ‘cashflow’ based valuation methods (in theory at least). This third school of valuation is valuing a business asset by asset. At it’s simplest, this means using the balance sheet value of the acquired assets / liabilities. In practice, this means applying some sort of realization % asset by asset. This is common in breakup or distress scenarios.

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3 hours ago, troph said:

I'd like to know size and how great that 10x company is knowing you are in residential services businesses....  I'm selling a manufacturing company in a sought after market segment for 7x right now.  and chewbacca may be in a niche market that could drive multiples up so that's entirely possible.

We are not residential services.  We are a professional services company.  But we're not selling for 4-5x.  We would probably sell for 8-10x, though, if we could land that.  I guess I get to keep working to get that EBITDA number up.

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5 hours ago, BeardIP said:

Agreed, no pity from me for Wall St. I'm just saying because it sounds like, in a historically down year, troph has been super busy with deals coming out of her ears and dbeasy is active as well, which probably means they are dang good at this stuff.

Well, there is a lot of "m&a" activity that goes on well below the radar of Wall Street, per se.  A pretty fair number of small business owners sell off to finance their retirements and that's a lot of the activity we see around here discussed on threads like these.  Not sure if that is down or not, although I suspect economic conditions might deter potential buyers these days, even if it doesn't require a major underwriting from a big bank.  Probably quite a few sellers who figure they won't get top dollar, too.

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2 hours ago, Dbeasy said:

As you guys know, the multiples depend on how good the company looks when it reaches out to potential buyers. A poorly prepared company will sell for a terrible multiple, or not sell at all. A well-prepared company can get a big premium. I usually tell owners to spend 12-24 months addressing the ugly parts of their business with strategies and operational initiatives to make themselves more attractive at sell time. 

More often than not, by the time someone brings me in to help them prepare, they don't have enough runway time to do it well. It's pretty unfortunate. They spent all these years building a pretty good company, but didn't put in the same effort to dress it up. I worked with one company a few years ago who did take the time (27 months), and we were able to triple their valuation. The investment bankers love to have someone like me come in to help them prepare because it makes their job easier on the sale, and at a much higher multiple.

What kind of things, in general, do you see that companies need to clean up?

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13 minutes ago, Chewbacca said:

We are not residential services.  We are a professional services company.  But we're not selling for 4-5x.  We would probably sell for 8-10x, though, if we could land that.  I guess I get to keep working to get that EBITDA number up.

Is your business founder dependent or can you easily transition out after a year?  If it’s a desirable service sector with sustainable growth and reoccurring revenue or predictable pipeline you can get a lot more. You won’t clear 5x until you are reliably north of $1M EBIDTA and no real concern of it falling below that. As you increase EBITDA multiple increases at a rate of increase dependent on all these factors discussed. 

7 minutes ago, Chewbacca said:

What kind of things, in general, do you see that companies need to clean up?

The parts that are messy. 
 

serious answer - financial reporting, contracts, contract terms, everything from employee / contractor classification to employee handbooks to resolving any HR complaints, if IP is important a whole host of things from IP assignments to registrations to contracts, overall customer pricing, proper spending in areas that matter to a buyer, resolving disputes, warranty terms, clean up warranty claims, insurance evaluation, coverage changes, lease terms if real estate is involved and important, diversifying customer base, I mean the list can go on, and on, and on.  It’s like reverse due diligence you ask all questions a buyer would then you fix problems. I’ll let others add to it. 

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6 minutes ago, Chewbacca said:

What kind of things, in general, do you see that companies need to clean up?

There is a fantastic influencer I follow on socials, "Secret CFO", check it out. But this is something he posted that as a 101/primer. It's long (19 tips) so I will spoiler it, but the general idea is to get your quality of earnings rightsized and tell a good story:

Spoiler


A confession.

Of the 25 or so M&A deals I have done across my career, only one third of them were acquisitions. Two thirds have been divestitures.

I’ve sold a lot of businesses.

And there is one simple thing that sets apart a good exit from a poor exit.

Preparation.

Preparation is everything.

I have been a forced seller of a business, where there was no opportunity to prepare the business for sale. We sold for a 20-30% discount to market value.

I have also run a process where we prepared the business immaculately. We spent 18 months optimizing perfectly for the point we took the business to market.

We secured 15-20% more enterprise value than we expected.

--

Here are 19 tips for selling a business:

#1 - Know Why You Are Selling

For the rest of this post I’ll assume you want to maximize value. But there are plenty of other reasons to sell.

Especially founder led businesses who will be particular about who they are selling their baby to.

Being clear on what you are optimizing for is critical.

#2 - You Only Get One Shot

The value you get will always be the value you get.

So get it right.

If you sell a business for 10x EBITDA, only to see it’s EBITDA 5x just 2 years later, you have left value on the table.

A good sale process would get credited for that future upside.

Don’t leave money on the table.

#3 - The Range of Values is Huge

On a typical sale process, the first round bids are often + or - 30% around a midpoint.

A range of 70% - 130%.

There is a lot to be gained by getting your disposal strategy and execution right.

#4 - The Value is Controllable

You will hear people say “the price will be whatever the price will be.”

I disagree.

The price will be whatever you convince the buyers to make it.

What ‘the market’ thinks is irrelevant if you can find one person to pay much more than anyone else.

I once sold a business to one of the richest people in the world.

A multi deca-billionaire.

They paid 25% more than any other bidder. Well beyond the upper end of our expectations.

They liked the business and the story we presented so much, they decided they had to win the auction.

So they rounded up by nearly a hundred million dollars.

Pocket change for them.

Rocket fuel for us.

Yes, this is a bit of an edge case.

But this same phenomena happens at different levels.

#5 - Tell A Wonderful Story

When you sell a business, you are not selling a bunch of assets, people, and contracts.

You are selling a story.

And a good story is not good enough.

It must be a wonderful story.

When that deca-billionaire overpaid, they did so because he fell in love with the story.

Of what the business was.

But more important than that, where it could go. And specifically where it could go under their ownership.

#6 - Build a Story in the Zone of Believable Fiction

Businesses never stand still. They are dynamic.

And so are sale processes.

The art of running a good sale process is to make the facts of the business feel static and solid. Even if the business is dynamic.

There are four different zones these facts could live in:

Zone of Believable Fiction

Zone of historical reality. This is the zone where many business sales happen. Especially in SMBs. Without proper exit planning. Much value gets left on the table.

Zone of near future reality. This is where you get paid not just for the business today but for the forward momentum of the business.

Zone of believable fiction. Here you are pushing the story beyond verifiable facts (past or future). And into the realms of what is possible to achieve with the business. I.e. the potential forward momentum.

Zone of unbelievable fiction. If you are pushing a story in this zone. You are compromising your credibility with buyers.

You should plan your exit in zone 3. The zone of believable fiction.

This is where you ‘sell the dream’ to buyers.

If you push in to the zone of unbelievable fiction, your story will fall apart. And the buyers will default to the zone of historical reality.

You are now at the bottom of the value range.

Not where we want to be my crispy friends

#7 - Define the Assumptions Under Your Wonderful Story

Let’s say the story you want to tell is as follows:

You have

a personal care Ecommerce Business with $50m revenue, and $5m EBITDA.

the leading brand in your market segment, and can grow to $250m.

an exciting new product development program

high repeat buy rate

But you need capital to fund inventory and customer acquisition. The ideal buyer will be the one that can solve that problem.

This presents as a capital problem. I.e. it only needs the right PE or VC fund to inject capital, and the business can go to the moon.

There are a bunch of explicit and implicit assumptions here. To name a few big ones:

the market is big enough to facilitate growth to $250m

that customers can be acquired cheap enough

the supply chain plan for growth is robust

the management team is strong enough to run a much bigger business, or it can be easily strengthened as needed

Any decent buyer is going to DD these points to death.

By defining the implied assumptions in your story, you can work on how you evidence them (more on that later)

#8 - Run the Napkin Valuation Math

It is vital that you build your target napkin valuation math early.

If you are going to deliver that dream value, it won’t happen by accident.

We are going to have to will it into existence (more on how later).

Let’s say your target valuation math is an EBITDA of $15m and a multiple of 10.

You can now work back from what needs to be true to deliver that

#9 - Current Reality Audit

So you have defined the ‘story’ you are selling, the assumptions that would underpin that story, and the valuation math that applies.

You have put some flesh on the bones on the ‘Zone of Believable Fiction.’

Now for a reality check.

Where are you really?

Audit your current business reality against this story you want to tell.

What are the gaps?

Here is an example. We have a business we would like to sell for $120m in say 12 months that today is probably worth $60m:

Here you get a clear simple statement of what is needed to make your ‘believable fiction’ a valued reality.

This moves us to the next point, and the most important point of all…

#10 - Start Planning Early

Good exit or divestiture planning starts 18-24 months before the sale

You can sell a business in a few months if you want to.

But you will be selling on the zone of historical fact ($60m in the above example).

By starting early, you can resolve the issues that bridge your valuation gap.

The bigger the issues, the more time you need.

It’s all about the ambition in your exit valuation and the story you want to sell.

More work to do?

More time needed.

Not just to do the work, but to prove it’s happened to buyers.

Building an audit trail.

#11 - Optimize EBITDA

Assuming you are selling on an EBITDA multiple, you need to optimize short term EBITDA.

Specifically the Trailing Twelve Months EBITDA at the point you sell your business.

Strip out all unncessary cost. Scrutinize every penny. Drive sales harder than you ever have in your life.

There is a lot at stake

Imagine you had an opportunity to reduce costs by $20k per week.

Valuable at any time.

But on an exit runaway, that $20k per week, is an extra $1m of profit per year.

And if you expect to sell at a 10x multiple that is $10m of enterprise value.

$20k per week of cost savings, become $10m of extra value if executed well.

And the earlier you execute these initiative the more you can build them into your TTM EBITDA. Rather than relying on adjustments. We covered this in detail last time.

A watch out here though. You don’t want to push it so far it undermines your ‘wonderful story.’

Say your story is that you have a one of a kind brand that has a unique connection with its customers. And that you hope that will get you a 20x multiple.

If you then kill all brand marketing activity in the twelve months before sale, you destroy the story. You might add an extra 10% onto your EBITDA, but it could cut your multiple in half.

The ‘wonderful story’ is always your true North.

Check out the post on Quality of Earnings to understand the best way to present the earnings of your business to a buyer

#12 - Optimize Multiple

The multiple you are paid will depend on the quality, and credibility of the story you tell.

Factors affecting EBITDA multiples

You need to do everything to remove downside risk to your current earnings. This means asking yourself ‘what could happen that would reduce our future earnings’.

And then pre-mitigate it.

Often this is about the strength and durability of revenues.

How can you improve contract lengths, and customer concentration to improve revenues? Increase switching costs for customers.

Mitigate cost increases. This is particularly relevant in a high inflation environment. How will you convince a buyer inflation is not going to eat your earnings?

Likewise, you want to build some upward pressure on multiples, through growth opportunities. Strengthen the brand. New products. New markets.

It’s all about articulating the full potential of the business, through a growth plan.

#13 - Execute Hard

By now, you will have built a good idea of what is needed to make your sale a success.

Now is the time to ‘control the controllables.’

Micro Management.

12 months of pure execution. Remember $20k per week = $10m.

Once you have the plan together, forget about the sale. M&A processes are very distracting for sellers.

I have seen many sales fall over because the business came away from its plan, and the ‘wonderful story’ fell into the zone of unbelievable fiction, and fell apart.

You have your plan.

You now need to focus on execution to get your reality as close to the ‘believable fiction’ as possible.

This is where you build the proof that your ‘wonderful story’ can be a near term reality for your buyer.

#14 - Get Your House in Order

This is the boring bit.

When you sell a business you will need to put every conceivable piece of information on your business in a data room.

Accounts. Permits. Customer Contracts. Staff Details. Supplier Contracts. Intellectual Property. Tax Records. Price files. Leases……

I could go on, but you get the idea.

Make sure you have these things in order, and in one place. Again this is much easier if you start early.

#15 - Select Advisors Wisely

You need the right advisor line-up. I have covered this in detail earlier in an earlier post. But the two most important roles are the Investment Bank you appoint to run the process, and the law firm you use.

Get this right, and the actual process itself, will be easier.

You should largely just be following advice from your well paid advisors.

The 2-5% of enterprise value you pay them will feel painful. But pick them right and they will add more than this in value every time.

They will help you decide how to structure the process; How many rounds, How to canvass for buyers, What diligence to perform, etc. They do this all day, every day. You should challenge them, but you are paying for their advice, listen to them. Remember though: the big decisions are yours to make, don't outsource them.

The slick process management will make sure you are never left wondering ‘what if’.

They will also help you with how to manage due diligence. Often it is better to get ‘Vendor’ side due diligence on key assumptions in the plan.

As the seller, this will give you a sense for how your numbers will stand up to due diligence before they meet contact with buyers.

More on the details of the process mechanics here

#16 - A World Class CIM

Your Confidential Information Memorandum (CIM) is the document where you formally tell the story of the potential of the business. Sell the dream.

It’s a document normally 50-100 pages where every corner of your business is laid bare for a buyer.

Your investment banker will write this for you but it’s important you are comfortable with the content, and know it inside out.

#17 - Consistent Storytelling

Whilst the CIM is the formal channel for telling your ‘wonderful story’ it is not the only channel.

The story of your business gets told everywhere:

Through your numbers.

Through your customer relationships.

Through the wording in your supplier contracts.

Through the look on your employee’s faces

Through the greeting at the reception desk

Through your leadership actions.

Everywhere

Your job is to make sure, that your wonderful story is told consistently at every point a buyer makes contact with your business.

#18 - Selecting a Buyer and Deal Structure

There is much more than goes into selecting a buyer than just value.

There may be some non-financial considerations (particularly in founder led businesses).

But also, different deal structures will have different post completion risks.

In pure corporate M&A you are more likely to get straight cash upon completion.

But you may get offered stock with a lock up period. Then all a sudden the future prospects of your buyer, and the price at which the stock gets offered is critical.

Or if you are in a founder led business, an earn-out is not uncommon. An earn out is where the cash paid is dependent on post completion performance of the business.

That’s a difficult thing for a seller to swallow. Having the value be dependent on the performance for a period where they no longer own the business.

This is especially common in founder led businesses. Every founder I’ve met said ‘I don’t want an earn out.’

The problem with that, is a buyer will often just de-risk their cash offer down to the zone of historical reality. Once they realize that, an earn out doesn’t feel so bad.

Or you may have fixed consideration, with a part deferred until after completion. Sometimes for many years. Then you have to think about the credit risk of the buyer, and the time value of money.

Even if you have a cash offer, you will have representations, warranties and indemnities in the legal agreements. All which are forms of leaving risk with the sellers.

Needless to say the detail here is extremely important.

Your advisors are the experts but you need to understand exactly what your risks and exposures are on each deal. Then weigh it up against the value, and any non-financial considerations.

#19 - Be Relentless

Sale processes are exhausting. Whether thats as a corp dev on a corporate deal, or even more so as a founder selling your business.

Maintaining energy and enthusiasm throughout is hard but critical.

If you need it, get someone experienced to coach you through it. From a distance. Someone who can listen to the ups and downs of the deal, but keep you level emotionally.

This is how I use my independent directors when leading a deal as CFO. If I were a founder, I would want someone with experience behind the scenes in my corner on a 1 on 1 basis.

So, those are the 19 things you need to know about selling a business.

But the essence of securing a great business sale can get boiled down to on simple idea:

 

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I really like his disregard for “the market” as I hate it when lawyers only respond “well this is market” in a negotiation. I don’t do market deals, I do individual deals. Now granted often we follow the herd but still sometimes you don’t have to or you are required not to. 

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8 minutes ago, troph said:

Is your business founder dependent or can you easily transition out after a year?  If it’s a desirable service sector with sustainable growth and reoccurring revenue or predictable pipeline you can get a lot more. You won’t clear 5x until you are reliably north of $1M EBIDTA and no real concern of it falling below that. As you increase EBITDA multiple increases at a rate of increase dependent on all these factors discussed. 

Yeah, we're well north of $1M EBITDA and revenues have been increasing at a rapid pace the past 3 years.  Our 2023 revenues are up 67% over 2022 revenues.  We project 2024 will be up 50% or more on 2023.  We have spent the past year getting to a point where we will be able to walk away after the sale and the business will keep chugging along.

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1 minute ago, Chewbacca said:

Yeah, we're well north of $1M EBITDA and revenues have been increasing at a rapid pace the past 3 years.  Our 2023 revenues are up 67% over 2022 revenues.  We project 2024 will be up 50% or more on 2023.  We have spent the past year getting to a point where we will be able to walk away after the sale and the business will keep chugging along.

Then you might be 7-8x or higher. And that’s going to point to hiring an m&a advisor to help you maximize it.  

I do agree if you are just now thinking about selling you are at least 12 months out from being able to market it for sale. So if you want to sell soon you may want to start those conversations. 

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3 minutes ago, troph said:

Then you might be 7-8x or higher. And that’s going to point to hiring an m&a advisor to help you maximize it.  

I do agree if you are just now thinking about selling you are at least 12 months out from being able to market it for sale. So if you want to sell soon you may want to start those conversations. 

We've been thinking about it for a while but were approached a couple months ago out of the blue.  No offer materialized from those talks due to unrelated things going on with their business, but it got us thinking that we might be closer to selling this thing than we thought.  We have a planning retreat coming up in 5 weeks and this will be a big topic of discussion.

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46 minutes ago, troph said:

Then you might be 7-8x or higher. And that’s going to point to hiring an m&a advisor to help you maximize it.  

I do agree if you are just now thinking about selling you are at least 12 months out from being able to market it for sale. So if you want to sell soon you may want to start those conversations. 

What kind of fees would an M&A advisor typically charge?  Flat fee or % of sale?

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Good thread.  Just a point about prepping a company for sale. 

A strategic buyer is going to be less concerned about well-documented systems and processes, succession planning, etc.  They will just be looking at how easy or difficult it will be to bolt-on the acquisition to their existing platform.

Whereas all of those at systems and processes, etc. documentation will be likely very important to a financial buyer.  They will be looking for the ability to replicate, scale and grow the company based upon the additional capital they are providing, hopefully without having to get their hands too dirty beyond inserting a CFO that they trust and having board-level involvement.  It seems that they almost always have a 5-year timeline until they intend to achieve an "equity event."  So they will pay a premium for a company that is ready to hit the ground running, so to speak.

Edited by DalTxHornFan
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23 minutes ago, DalTxHornFan said:

Good thread.  Just a point about prepping a company for sale. 

A strategic buyer is going to be less concerned about well-documented systems and processes, succession planning, etc.  They will just be looking at how easy or difficult it will be to bolt-on the acquisition to their existing platform.

Whereas all of those at systems and processes, etc. documentation will be likely very important to a financial buyer.  They will be looking for the ability to replicate, scale and grow the company based upon the additional capital they are providing, hopefully without having to get their hands too dirty beyond inserting a CFO that they trust and having board-level involvement.  It seems that they almost always have a 5-year timeline until they intend to achieve an "equity event."  So they will pay a premium for a company that is ready to hit the ground running, so to speak.

depends on the buyer to be quite honest. my client selling to a strategic right now is buried in third party firms scouring legal, accounting, insurance, benefits, and HR.  it really just depends. I am closing a work out/turnaround acquisition by another strategic buyer and the due diligence was intense. 

I do represent a buyer that is doing roll ups and they are exactly like what you describe. don't care about anything other than quality of accounts.

Edited by troph
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1 hour ago, Chewbacca said:

What kind of things, in general, do you see that companies need to clean up?

 

21 minutes ago, Chewbacca said:

What kind of fees would an M&A advisor typically charge?  Flat fee or % of sale?

An M&A advisor can fall into two categories: a) people who help you prepare to sale and help identify and fix strategic and operational issues (someone like me), and b) the actual investment banks that reach out to buyers to sell the company.  You may need one, both or none of those two categories. You always need the lawyers llike Troph and accountants.

The investment banks will typically have a minimum fee of $300k+, and almost always will be defined as a percent of the deal, ranging from 3-7% or more. If you are selling a small company (revenue under $30m), it's extremely difficult to find an investment banking firm that will do it, or be useful. There are a few specialty firms out there, but a lot stink.

For someone like me, the first category, the charges are simply for the work provided. By definition, compensation can't be tied to the sale level. Otherwise a broker license is required.  The amount you pay for those services can be thought of as executive pay for the amount of time required.  For example, if you have someone help half time for a year, you'd probably pay between ~$100-250k, for example.

Others above have listed out many of the things you have to address before starting a sales process. I won't repeat those.  But fundamentally, the company strategy and operations has to be solid, with clear communications, plans, organization, etc.  It is usually helpful to bring in an outsider, because the people in the business seem to never see the issues that will cause a problem in a sales process.  It's amazing to me.  I think people just get caught up in the business and because they don't have a lot of experience selling companies, they don't have a feel for the things that will hang up a sale. One company I worked with had huge product quality issues, but had become numb to them.  It was destroying their customer satisfaction and would have torpedoed deals.  I helped them work through the processes to fix the quality problems.

The M&A advisor can also help you determine whether you should engage an investment banker and when, and usually has a roster of companies to suggest.

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44 minutes ago, Chewbacca said:

What kind of fees would an M&A advisor typically charge?  Flat fee or % of sale?

Quote

 

Good advisors are expensive.

But good advisors pay for themselves 10x on big transactions.

If you do need a hired gun, hire the sniper who makes the 2 mile kill shot and never misses.

These folk are normally paid on a time cost basis or a fixed fee subject to a fixed scope.

The fixed fee is often a sham though. They will always find an excuse to claim scope creep and bill an over-run.

Don’t kid yourself, you are paying for their time (at $1,000+ an hour). So make sure they are efficient.

It is impossible to get good advisors, to agree to a fee that is contingent on closing.

The best know they don’t need to agree to this to win work.

 

 

Edited by BeardIP
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For the OP or anyone else. There are markets up and down the chain including sub-$1M EBITDA companies so don’t let numbers like $50M scare you. It’s true the advisor talent starts to disappear as you go lower but there is a way to sell even at lower numbers.  I don’t necessarily know those that can help at lower ranges but from time to time we help those companies with an LOI or acquirer in hand. 

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15 minutes ago, troph said:

For the OP or anyone else. There are markets up and down the chain including sub-$1M EBITDA companies so don’t let numbers like $50M scare you. It’s true the advisor talent starts to disappear as you go lower but there is a way to sell even at lower numbers.  I don’t necessarily know those that can help at lower ranges but from time to time we help those companies with an LOI or acquirer in hand. 

I sometimes run the process when it doesn’t make sense to hire an investment bank. I’m doing that now for a small company. I also sometimes go out and find people that can run the process in a particular industry segment. I prefer to find a true investment bank who will do the work for a reasonable fee. That has the best chance of a good offer. 

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