FAQs

How long does it take to sell your business?

It depends on the attractiveness of the business, the quality of the information available, and the experience of the advisory teams of both the buyer and the seller. A quick sale process is 4 months; a long one 9 months.

Are there things I can do to add value to my business before sale?

Absolutely. Just like selling a house, the right money invested up front will be repaid many times over when the business is sold. Key things you can do right now: benchmark your company against the industry and address any negative variances; have your financials audited for the last 3 years; sit down with an estate planning attorney and ensure your business sale when it happens will be tax efficient.

Who should I use as my legal advisor?

Make sure you retain someone who has extensive M&A (mergers and acquisitions) experience. This may we be a different law firm than the one you use every day. In the contract negotiation process there will be numerous legal issues, worth millions of dollars in some instances, where you will be relying on the counsel of your lawyer. You absolutely want to pay up for experience here.

How are advisors typically paid?

Lawyers, by the hour, although some law firms will consider a success fee for part of their compensation on larger transactions. Investment banks, a retainer and a success fee. You should be able to negotiate that the retainer is refundable (deducted from the success fee at close). Accountants, by the hour or a fixed fee for something like a quality of earnings report. Subject matter experts, fixed fee.

What is a good time to sell your business?

Timing the market is hard, especially when the process typically takes 6 months, but selling when your industry is in favor is very beneficial. If the industry is not in favor, we usually counsel clients to wait a year or two.

How do you think about valuation at a high level?

There are three broad methods of valuing a company: the market multiple method, the asset method, and the income method. We’ve found that the market multiple method gives the most accurate assessment for company valuation in the short term, if the company is being efficiently run.

We typically look at two multiples to establish an upper bound to valuation: Price to Enterprise Value and EBITDA to Enterprise Value. We get these for publicly traded firms then adjust for size, growth, relative attractiveness, sustainable competitive advantage, etc. We also research for comparable transactions, and these factor in heavily when they’re available.

In addition to these general multiples, we’ll also look at, and adjust for, industry specific metrics, such as CAC, LTV, and churn for Managed Service Providers.

How does the size of your business affect valuation?

It’s definitely a positive. Larger companies will attract higher multiples. This trend is so strong, that some institutional investors create value simply by consolidating an industry: buying a number of small firms, repackaging them into a larger firm, and reselling the business.

When should I think about preparing for the sale of my business?

The sooner you do this, the more options you have.

• If you start 10 years ahead of your target sale date, you still have time to do serial acquisitions, or develop and sell a new product.
• If you start 3 years ahead of the target date, you have time to get really solid financials, avoid any black eyes like losses, and perhaps still pull off and integrate a good acquisition. You can get the biggest benefits of tax-planning if you start here or earlier.
• If you start a year before your target date, you can avoid some of the biggest tax planning blunders, ensure your financials are audited before you go to market, settle any outstanding legal issues, and move along any employees that need to go.

So, the earlier the better, but even a year ahead of your planned sale date gives you some useful advantages.

What’s the biggest mistake you’ve seen someone make in a sale?

Taxes. Not preparing for these properly, can create serious issues down the line, and even derail an otherwise good deal. A close second is not getting the owners on the same page before retaining a banker. Can be a big issue if there are different family members that own the business with different objectives in a sale.

What are the advantages of selling to private equity versus selling to a strategic acquirer.

Private equity is set up to do deals. They are easy to contact, are very clear and structured in their process, and have a higher likelihood of close. Strategic acquirers (other companies in your industry) aren’t generally as smooth in their acquisition process, but because they can incorporate your business into theirs, they can afford to pay more.

The best of both worlds is probably being sold to a PE that already has a platform in your industry (so they can capture the synergies and pay up for them), or a strategic (think Amazon or HP) that has a really well-developed business development group with a high level of M&A expertise, so can close deals quickly and predictably.