If selling your business has been on your mind, it’s likely that you have many questions about the process, the timeline, deal structure, future commitments and more. Below we try to tackle some of the most common questions that potential sellers might have as they prepare to sell their companies.
· How long will the process of selling my business take?
This question has no concrete answer as no two businesses are exactly alike and no two sell-side processes are alike. The simple answer is that it typically takes between three months and a year to sell a business. However, the process can certainly be shorter or longer.
One major factor that comes into play is the availability of data on your side. Your business broker or M&A advisor will need historical financial information, detailed company information (suppliers, customer data, organizational chart, key employee data, etc.) and various other pieces of data regarding your business when they assemble the Confidential Information Memorandum (CIM) to market your business. This is the key selling document detailing all aspects of your business. If you can readily provide this data the CIM can be ready in as little as two weeks. If not, it could take a month or more just to get started.
From there, the marketing phase, offer solicitation, due diligence, document preparation, and the eventual close typically takes anywhere from three to nine months.
· How is my business marketed to potential buyers?
Your business broker or M&A advisor will work with you to assess who may the best buyer for your business. This includes both strategic buyers and private equity groups. From a private equity perspective, your business can be attractive as an add-on – the group already has a platform investment in the space and your smaller company would be a perfect complement to the current investment – or a platform investment. Platform investments typically require at least $3 million of Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) and are the anchor investment for the private equity group to build around.
Once your business broker or M&A advisor has built the prospect list (buyers) for your company they will write a teaser email to send out to gauge the interest of the market. The teaser will include a blind description of your business along with pertinent financial data (revenue, profitability, etc.). If the potential buyer responds that they’d like to receive additional information, your M&A advisor or business broker will require them to execute a nondisclosure agreement (NDA) before forwarding the CIM for them to review.
· How will the transaction be structured?
This one really varies. If your M&A advisor or business broker generates multiple offers they will all look different from each other. This is certainly not an apples-to-apples comparison. Some offers will be apples while others will be peaches, oranges, and bananas, meaning some will include large cash components up front, some will include earn outs, others will feature a seller note, etc.
· Will a new owner require me to stay on after the transaction to run the business?
You can guess by now that the answer to this one varies as well, but generally a new ownership will be OK with you exiting as long as there is a strong management team in place going forward. If you as the owner are the heart and soul of the business, the new owners will more than likely want you to stay on for a defined period of time to help them find a person to succeed you. If you are amenable to staying on board many buyers will incent you with equity going forward, so that when they eventually sell the company years down the road you can effectively get a “second bite of the apple.”
· Should I change anything about my business during the sales process?
The easy answer to this one is to keep doing what you are doing. Remember, it is your job to run your business. You hired an M&A advisor or business broker to care of the selling process so that you can keep dealing with customers, employees, and generating new sales and profit. Buyers are always more excited by a business that is humming along nicely and growing at a good clip.
· Do I need to pay off all of my existing debt at the close of a transaction?
The answer to this one depends on the buyer’s preference. Most private equity buyers require a debt free/cash free balance sheet at close, but strategic buyers may look at things differently. You should be able to lean on your M&A advisor or business broker to help you through this one.
There are plenty more questions that will come to mind when selling your business, but hopefully these answers have given you an idea of what the process will look like.