Seven Key Points

When successful entrepreneurs and owners of private companies look to exit their business either by passing on the baton to a new generation or selling to an external party, they often approach the exit strategy with somewhat little planning and a lot of emotions. They rely on their experience, leadership skills, and proven success over the years. While these attributes are required for leading a business, such expertise usually doesn’t include knowing how to sell a business.

Here is a short list of what I learned from many mid-market M&A mandates:

1. An event or a process? Selling your business is not an event but a process, and the more you know about the process, the better the outcome for you and all stakeholders.
   
   
2. Lawyers and accountants: Your trusted lawyer and accountant who served you well over the years are excellent advisors in their fields of expertise, but they may not necessarily have what is required when selling your business. They will have a role in the process, for sure, but putting together a team of trusted professionals with a solid track record in M&A is critical. Changing horses midway is risky. Equally important, let your broker or intermediary take over the process. Keep the remote control with you but let go of the process.
   
   
3. Exposure: You may have been approached already by a competitor, a client, or a supplier, asking if you are interested in selling the business. While this is positive and flattering, exposure to a larger number of serious buyers generates the best buyer. Exposure allows for bidding and should result in giving you better options. Focus on optimizing the 90 percent of the selling price and conditions rather than minimizing the 10 percent of commissions, fees, and expenses.
   
   
4. EBITDA multiplier: Buyers usually use EBITDA multiplier (earnings before interest tax depreciation and amortization) to determine the value of a company. While EBITDA is a good financial tool, the multiplier is made of average deals within an industry. My experience tells me that the EBITDA multiplier is a favourable tool for the buyer, not the seller. You need to measure your business value based on why a buyer wants to acquire your company. It is better to establish the value of a business by determining the buyer’s intentions and what are they willing to pay rather than basing the value on average EBITDA multiplier of other businesses.
   
   
5. The fit: Buyers that want to grow the business and take the company to a higher level are the best buyers. Always aim to appraise the “fit” of the buyer with your business, your team, company culture, mission, and values. A strategic buyer is generally not looking to just “capture value” but aims instead, for an opportunity to “create value.”
   
   
6. Deal structure: Most sellers focus almost exclusively on price and the amount of cash at closing, but the deal structure is just as important. An all-cash deal may look attractive up front, but deal structure including earn-outs may be better over the long term. When the seller and buyer aim for a win-win deal and cooperate to build and accelerate growth, the business is more likely to increase its value many times over, and in doing so, make both parties much richer.
   
   
7. Market timing: The "buy low, sell high" principle is based on the idea of capitalizing on market inefficiencies and price fluctuations. Buying assets when their prices are low and then selling them when they appreciate is a great formula, but often, hard to execute. Finding the right buyer and selling at the right time is not always easy because factors like interest rates, the economic cycle, exchange rates etc. are beyond your control. Doing some homework ahead of time will help you select not only the best buyer but the most favorable timing.
   
   

Every business is unique and different. Paying attention to these seven guidelines can make  M&A more rewarding for both parties.

(W – 605)