Rockland Advisory Group, LLC (“Rockland”) is an investment banking and financial advisory firm based in Stamford, CT., which raises capital and provides merger and acquisition advice for middle market companies. Rockland typically advises business owners that preparation is an important first step in selling their business and should begin as early as possible.
- Preparation Prior to Selling: Cleanse your customer base and resolve any outstanding A/R issues. Identify contingent liabilities and resolve, remediate or settle them. Document your relationships with customers and suppliers as well as other parties who are important to the business.
- Document Profitability: Your business will be more valuable if you are showing profits even though in the short term you may be paying higher taxes. You should have your financial documentation in order to be able to show potential buyers that the business is profitable.
- Timing of Sale: Look for favorable market conditions and a period when your business is doing well. Favorable market conditions include the ability to access credit and equity markets, and industry is in favor with strategic and financial buyers. Don’t wait until you are forced to sell.
- Insure Retention of Key Managers: Potential purchasers, especially financial buyers, want to make sure that key managers and employees don’t walk out the door once the transaction is completed. Delegate the day to day business operation to key managers. Make sure that these managers and employees are induced to stay through bonuses, equity, etc.
- Organize your business for Sale: Reduce obsolete or slow moving inventory, which will usually improve your balance sheet and eliminate any possible arguments over the valuation of such stock during the sale process. Insure that the workplace is clean and well maintained. Sell off and convert into cash any scrap, redundant or obsolete machinery and parts.
- Run a Process to Maximize Value: Rockland is often approached to assist a seller who is negotiating directly with a single buyer. Negotiating with a single buyer does not give the seller a true test of market value and it potentially reduces the seller’s leverage. In general, owners are better served by running a professional auction process that will get the property seen by the appropriate number of strategic (industry) and financial buyers and yield a true test of market value.
- Have a Sense of what your Business is Worth: Many owners will base their belief about the value of the business on hearsay and rumors of what other owners claim they received. Often the information from other owners is inflated to make the owner look like a successful deal maker. The best way to know is have a third-party valuation done or speak to an investment banker who can research comparables for your business.
- Hiring the right Professionals can add to the value of your business: Owners are better served by hiring an investment banker to handle and coordinate the sales process. The investment banker will prepare the necessary material including the non-disclosure agreement, teaser, offering memorandum and marketing material. The professionals should also take care of showing the business to potential buyers and negotiating and structuring the most advantageous result. In addition, Rockland will typically suggest that the owner hire an M&A attorney as well as bring in the expertise of other professionals such as the accountant and financial consultants as you need them.
- Disclose any Negative issues early in the Process: Providing correct information is a critical part of obtaining full value of the business. Any issues with the business should be disclosed early in the process and presented in the best possible light. If the buyer discovers the issues then the credibility of the owner and the business will be reflected in a potentially lower valuation.
- Be Realistic about the Terms of a Sale: Issues often come up for owners who want an all-cash offer and want to be done with the business the day of the closing. These requirements are unrealistic in today’s market. At best owners will receive 50% – 70% cash and the remainder in an earn-out or equity in the business. The owner will often be asked to stay in the business for at least 18 to 24 months. Any shorter period will make the buyer suspicious that there is something that the seller is running away from.
In conclusion a successful sales process is not the multiple of earnings or revenues that your company sold for, but whether your initial objectives were met. Is the cash received, net of expenses and taxes, sufficient for your lifestyle? Are your employees in a good environment with an owner who will respect them and give them the opportunities for continued growth? The more preparation that is initially undertaken will help ensure that your objectives are not only met, but exceeded.
For more information, please contact Richard Conroy at:
Mr. Conroy has over 30 years of experience in investment and commercial banking as well as consulting. Mr. Conroy has provided debt and investment banking services to public, private, domestic and international corporations in consumer products, energy, food and beverage, infrastructure, manufacturing, medical, mining and minerals, retail, transportation and warehousing. Mr. Conroy has been involved in debt and capital raising transactions representing total consideration in excess of $25 billion.