As a business owner, you have spent years building & growing your business. You have gained a wealth of knowledge that has allowed you to become an expert in your field and deliver results that keep your clients coming back for more. However, when the time comes to sell your business you may find yourself with more questions than answers.
How do you go about preparing to sell your business; finding prospective buyers; valuing your business; managing the due diligence phase; preparing yourself and your team for the transition; keeping the process confidential, and finally completing the sale? This is where the sell-side advisor becomes a critical member of your advisory team to selli your business. They will be a strategic partner to you and a critical team member that you don’t want to forgo.
However, before you commit resources to a sell-side advisor it would be wise to know what they will do for you and why they are even necessary.
Your Trusted Expert to Sell Your Business
A sell-side advisor is an M&A professional that specializes in representing companies that are looking to be acquired. They are well-versed in the process from start to finish and should have a solid understanding of the current M&A landscape. A good advisor should have a plan that will attractively position the company to potential buyers and help maximize the valuation. The advisor will provide many services such as a pre-sale analysis, financial modeling, preparation of the marketing documents and CIM (Confidential Information Memorandum), management of the due-diligence process, and purchase agreement negotiations.
At this point, some business owners may be thinking that this doesn’t sound too difficult and that they could manage on their own. While feasibly possible, it is not recommended or wise to carryout. Expert M&A advisors that have spent years honing their skills and can bring experience from prior transactions are well worth the fees. As a business owner you don’t want to make selling your company a full-time job that will require a serious time commitment for education. Additionally, when you go to the negotiating table you want to be confident that you are in the best possible position. Just like you probably wouldn’t represent yourself in court, having a highly-skilled professional by your side in a transaction is very beneficial.
In addition to managing the process from start to finis, a good advisor will help maximize the value of your company and help you avoid common pitfalls. Common valuation metrics exist, such as multiples of EBITDA. However, each industry and even specific geographic regions have unique valuation techniques that your advisor will understand. As a seller, you don’t want to close your deal only to find that you left millions of cash on the table by using the wrong valuation technique. When it comes to common pitfalls, your advisor should be able to help analyze different forms of consideration used in the deal, earn-outs, and identify and reduce closing risks.
More importantly, your M&A advisor has a network a transaction experts, including transaction lawyers, accountants, and technical experts. This network of professionals can add significant value by minimizing closing risks, maximizing negotiation strength, and achieving most desired outcome in value and terms.
Questions for Your Sell-Side Advisor
Now that you have an understanding of what the sell-side advisor does and how they will help you achieve your goals, we should look at how to select an advisor. Not all M&A firms are created equal. Retaining an advisor can come with a variety of fees. It is important to trust that the firm you will be working with is able to deliver value. The following are a few good starter questions. Depending on your needs and industry you may have more or different questions.
1. Who will I be working with directly? – You want to know who you will be working with and what prior experience they have selling companies. Will they be working with you exclusively or are they working multiple deals at once?
2. What is your sell-side process? – Before hiring a firm, you want to know that they have a battle tested process for completing your transaction. Ask about how the process is managed, how the firm will be held accountable, details from prior transactions, and an estimated timetable for completion.
3. How would you market my deal? – This question ties to #2 but is worth its own point. How will the firm market your deal? Will it be listed on an online platform; will they directly contact buyers in their network or will a great deal of phone calls need to be made? And how big is the advisor’s network?
4. What are your fees? – What type of fees will be paid during the engagement and at close? Will you pay a monthly retainer? How will success fees be calculated? Will you be required to pay any other forms of compensation, cash or otherwise? Before signing any agreements be sure to have a solid understanding of how fees will be calculated and what you are getting into.
If possible, meet with the potential advisor for a face-to-face meeting before making a decision. You will be working closely with this person(s) for several months on one of the most important transactions in your company’s history. Having someone that is personable and that you get along with should not be discounted.
Next Steps to Sell Your Business
Selling your business is not a process that you want to go at alone. You may be a talented business owner with a team of excellent operating advisors. However, retaining a professional that knows the ins and outs of conducting a transaction is well worth the investment. Selecting the right advisor will take time and is not a process that you should rush. Once you begin to think that a sale is the correct course of action you should begin your research. Ask professionals that you already trust, such as CPAs and lawyers, for introductions to competent firms. The process from selecting a sell-side advisor to closing will be long and will most likely not always be smooth. Always ask questions of your advisor and be sure you are in agreement on the best strategy for your company. Once the sale is complete you will look back and be glad that you worked with a professional and did not attempt this process alone.
About Rimonark Advisors
At Rimonark, we help clients maximize wealth creation through business valuation and assessment, education and preparation, and growth or exit planning advisory services. We are here to help our clients get ready for a successful business sale, get the most value, and achieve fruitful confident transitions. We are rewarded for helping clients harvest years of hard work by unleashing business cash flows and converting them into generational wealth. Contact us for more questions.