How to Sell a Business in 4 Months
Tyler Lang covers the high points on how to keep a sale process on the rails and charging towards a quick and relatively painless closing.
It seems like almost every owner we speak to has a horror story to tell about a friend or contact of theirs who set out to sell their company and it took 12…..18….. 24 months, or even longer. Unfortunately, this seems to have become the prevailing view about what to expect if you want to sell your company. It needn’t be, and here are some tips we have to share from business sales that we have closed in under 4 months:
START OUT WITH A VERY CLEAR TIMELINE. In our engagements we strive to adhere very closely to a 4-month sale process. The first month is spent preparing the marketing package, the second month marketing the deal and meeting prospective purchasers, the third month finalizing/signing the Letter of Intent (”LOI”) with the ultimate purchaser and beginning due diligence, and the fourth month completing due diligence and finalizing legal agreements. Some would view this as a really tight schedule, but if you don’t start out strong out of the gate, everything tends to just drag out from there onwards.
MAKE ADJUSTMENTS QUICKLY IF NECESSARY. As noted above, we strive to get to market after a maximum of 30 days of prep and be done the majority of the marketing by the end of month 2. We send the marketing package out to a small handful (under 5) of well-chosen targets out of the chute. We push to get some good, candid feedback on the opportunity and the “story” and revise the marketing package if necessary, without delay. Things that may need adjusting could include valuation, deal structure, product/service description, transition plans, etc. Once updated, we will then make a full court press on the rest of the targets in the hopper. Failing to “pre-market” and adjust the story quickly just lengthens the process, and even worse, may cause valuable prospective purchasers to drop off.
ALIGN YOUR ADVISOR’S COMPENSATION TO THE TIMELINE. Everyone starts out with the best of intentions, but if there isn’t proper motivation to adhere to a tight timeline, then there’s no use having a timeline at all. Be careful of Advisor retainers that last 6, 8, 12 months or longer. Your Advisor should be primarily focused on the payout at the end of the process, not in earning consulting revenue regardless if a deal closes or not. If the total amount of retainer is meaningful revenue to your M&A Advisor, then you don’t have alignment in getting a deal done quickly. When pitching new clients we let them know that if a deal doesn’t close, it’s very painful for us. That’s alignment.
EVERY SINGLE DAY COUNTS. THE BAHAMAS TRIP CAN WAIT. One thing is constant in the M&A business: “Time Kills All Deals”. The longer the process takes, the more opportunity there is for deal killing hitches to pop up on the purchaser or the seller’s side. Years ago, I was two days away from closing a transaction for a client with a publicly listed purchaser, when the CEO at the purchaser got sacked by the Board. The interim CEO at the purchaser put everything on hold, and the deal just fizzled away in the months thereafter. Our client went on vacation at least twice (for a week or more each time) during the sale process, or went golfing countless days over those months, grinding everything to a halt each time. Similarly, their professional service providers took up to a week to turn around key documents. Those two critical days were lost twenty times over due to a general lack of focus. It’s a shame but it happens more often than we care to discuss. This is likely one of the most important events in your life, so treat it as such.
GET YOUR HOUSE IN ORDER BEFORE YOU START. Even if everyone is aligned and not blowing valuable days on vacations or golfing, there are still unexpected things that can pop up that delay a closing. Most of these things can be taken care of in advance. Getting your minute books updated, making sure key client/supplier contracts are updated/signed, completing estate planning with your tax/legal advisors, etc. Any one of these items can cause weeks of delay. Combined, they can equate to months of delay. Figure out up front if your accounting/legal advisors have the requisite M&A experience. If you think it’s expensive to work with a proven, experienced professional, wait until you see how much it ends up costing you to work with an amateur.
SH*T ALWAYS HAPPENS, REACT DECISIVELY. Sometimes no matter how committed everyone is, and how much advance preparation has been completed, inevitably things come up that push the closing date out. Some of the most common delays include receiving approvals from clients or suppliers, landlord approval for lease transfers, bank loan payouts, etc. etc. These are the things that can push a deal beyond the 4-month closing window. The only thing you can do is to not take your foot off of the gas pedal and be aggressive in sorting these out. Don’t let one of these delays end up being the one that kills the deal.