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Preparing for a Transaction: Six Tips from Transition Experts

By the time a business owner is thinking seriously about a sale, the window of opportunity is often already closing. This is part of the reason that more than 70% of deals leave money on the table and more than 50% never get to the finish line. It should be tempting in the current market, when strategic buyers have cash on the balance sheet and financial buyers have capital, to explore exit options.

Sellers should always be considering and weighing their options and should plan their possible exit three to five years in advance. The process begins with a rigorous analysis of the business, including sales, accounting, legal, operational, management and staffing. Owners must determine what needs to be done prior to a sale, at the sale, and after the sale.

A team of nationally recognized business transaction experts recently came together to share the most important advice they provide sell-side clients in the current M&A environment.

Bob Forbes, President, The Forbes M+A Group: Identify the key levers that can increase the value of your business — beyond just EBITDA.

Everyone knows they need to focus on growing revenue prior to a sale, but, beyond that, smart sellers are determining what key drivers could make their businesses more valuable. Perhaps employee turnover is an issue in your industry. Recognizing that and implementing strategies to reduce it could be a critical competitive advantage that would increase the value of the sale. Maybe concentration is a problem in your organization. Rather than focusing on increasing all sales, a more advantageous effort might be to identify ways to diversify customers, products, or regions.

Joseph Janiczek, Founder and CEO, Janiczek® Wealth Management: Consider the length of time a life-changing liquidity event must sustain you and what you want to do following the sale.

Many sellers who are of an older, more traditional age for transition face their transaction thinking about retirement and financial independence. There may be family, philanthropic, and legacy considerations that should be explored and these sellers are generally looking for a more conservative, lower-risk asset plan. On the other hand, younger entrepreneurs who plan to sell a business require a whole different kind of post-transaction plan and perspective. They might be thinking about their next deal or their next project and likely want to “stay in the game.” These sellers may become angel investors or may get involved in real estate investments.

Joanne Baginski, CPA, CM&AA, Consulting Partner, EKS&H LLLP: Sellers should conduct due diligence as comprehensively on the buyer as they are doing on you.

This advice is particularly important if an entrepreneur plans to stay with the business after the sale or if it is going to be a multi-phase (e.g., “two-bite”) sale. However, even if the transaction is 100%, sellers often have ideas about protecting their employees or legacy longer term. Do they know and understand your business? In some cases, a financial buyer might provide better options for the business and its existing employees, but, in other situations, a strategic buyer might be right. In either case, a seller can and should ask about previous deals the buyer has been involved in and might want to ask to speak to sellers from past investments.

Pål Berg, Managing Director, Northern Capital: Don’t get greedy — be prepared to take a little less now so that you don’t have to take a lot less later.

Yes, there are windows, and when you see one sometimes you need to take it. All you have to do is look at the oil and gas industry today to find people who should’ve sold years ago. Similarly, buyers should not only consider the highest offer. I’ve had experience with a private equity buyer that knew nothing about the oil and gas industry. In the end, the deal fell apart because they were nervous about the cyclical nature of the business. Several years later, we went back to market. It may have gotten a lower price, but the buyer was right, and a successful sale was achieved.

Lisa D’Ambrosia, Managing Director/President, Minor & Brown, PC: Both buyers and sellers are more cautious than ever but both are looking for the right opportunity, and the right advisors help.

While there are opportunities, this is a very conflicted market. As the due diligence process takes longer, the risk of a sale failing increases. This risk can be minimized by advance planning and preparation prior to entering the market place. Issues arise during the process that really shouldn’t create but a well prepared Seller can address potential issues earlier in the process to minimize delays. The right team of advisors can help you prepare and also help you determine what does and doesn’t need to be an obstacle. Each transaction has different challenges and, therefore, opportunities which need to be identified early. Having an experienced transaction team of advisors greatly increases a Seller’s likelihood of success not only for the transaction closing but more importantly having the transaction close at the anticipated purchase price and structure. Many clients who just have tax preparers don’t ask the right kinds of questions.

John Brown, CEO, Business Enterprise Institute, Inc.: Pre-sale exit planning is key. Sellers need to think about their potential sales earlier than ever.

Particularly for sellers who have not been involved in a transaction before, or have not been involved in one for a long time, preparing for sale before going to market can provide a myriad of benefits in terms of time and money. Proper planning can help increase the likelihood of transaction success, identify costly regulatory and compliance issues, and decrease the risk of inaccurate financial statements and resulting recourse.

Preparing your business for sale involves more than just cleaning up your books. Determining future needs (well in advance), strategically assessing buyers and offers, leveraging experienced advisors, and improving value-added business drivers will ensure the greatest chance of a successful transaction at the greatest possible value.