Recently, a number of clients have engaged us to value their business because they do not have a firm grasp of what their company is worth and they are considering selling their interest in the near future. After we performed the assignment and met with the client to discuss the value drivers of their business, the discussion always turns to, “Okay, now what do I do?” The question is referring to the overwhelming process of actually putting the company on the market. The following information may help you in the process of selecting a method to market your business when you are ready to sell.
For this discussion, let us assume that the company’s financial records are in order and the CFO is prepared for the 30 to 60 day due diligence period that comes with selling a business. Let us also assume that a merger and acquisition attorney has been selected and tax strategies have been discussed with a tax advisor to minimize your tax liability from the sale.
Options to market your business
The easiest option is to select a business broker to market and sell your business. Take time here and make sure the broker is a good fit. A couple of good questions are: what industry or industries does the broker work in the most and what is the typical size of companies the broker sells (size is usually based on EBITDA, but can also be based on revenue)? Business brokers can either charge a flat fee to market and sell a company or take a percentage of the total selling price. The broker should first sit down to discuss the possible range of selling prices and to get an understanding of your expectations regarding the selling price.
There is both good and bad with this option. The good is that the corporate office of a company will not have to directly deal with potential buyers and the broker will keep the process moving forward, much like a real estate agent does in a real estate transaction.
The bad is that you have to pay for these services out of the proceeds of the sale.
Another option is to market the company to existing employees that have shown an interest in purchasing the company. Be prepared for a large portion of the purchase price to be in the form of seller financing in this scenario. Also, be prepared that you could end up owning the company again if the employees default on the note. However, if the purchase price of the company is accurate, then the company’s earnings should be able to pay for the financing of the purchase price.
A more difficult option is to market the company yourself. Beware, this option puts a lot of stress on the corporate team, but could save you significant money in avoiding transaction fees due to a business broker.
The first step here is to identify local, regional and national competitors to your firm. These potential buyers are defined as ‘strategics’ and are most likely to offer the highest price for the company. Next, begin to compile a list of private equity groups (“PEGs”) in your market place. Your CPA or banker may have a list of PEGs that you can leverage or search for associations that attract PEGs to them.
Once you have a robust list of potential buyers, create a ‘teaser’ document that is one page in length. The document should read like an executive summary and include information such as:
- Why you want to sell
- What the company does
- A brief history of the company
- A brief description of the leadership team
- How people work for the company
- What the last twelve months is for revenue and EBITDA
- What the future looks like
- Contact information
Feel free to add other important information, but keep it to one page in length. Once completed, email the teaser to the contact person on the list you created and hope you get at least two potential buyers.
Lastly, be prepared for a long and tedious process, and that the seller and buyer will have different opinions of ‘value’ concerning the company you have built.
Mike Metzler CPA/ABV, CMA, CGMA, ASA