If you’ve ever sold a home, you know how complicated it can be – the seemingly endless paperwork, the frantic attempts to clean the house before a last‐minute showing, the frustrations of negotiation. Selling a business is even more complex – and unlike residential real estate, there is no central resource of businesses that are for sale. So as a business owner, how do you find the right buyer?
The first step is to hire a financial advisory firm that you trust. An experienced advisor will be an invaluable partner throughout the entire sale process, bringing buyers to the table and helping you maximize the purchase price. But not all advisors are created equal.
Here are some qualities to look for in a reputable advisor:
- A verifiable track record – Good advisors should have a complete list of past transactions, including a list of references that you are free to contact.
- An established network of prospective buyers –This includes access to numerous marketplaces and key contacts within your industry. The advisor should also have the ability to reach buyers who might not be accessible via traditional channels, such as private equity groups and investors.
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Double vision – In order to gauge transaction viability, the advisor should conduct an objective and candid review of your company as it is seen through your eyes, as well as the eyes of prospective buyers.
Understanding both the buy side and sell side of transaction will help the advisor find the best match for your business. - Knowledge of your industry – The sale of a business is not just an exercise in numbers. While any advisor can do the math, the best advisor gains a solid understanding of your business, including the industry you operate in and any potential threats to growth and earnings. This is the only way to predict future profitability and in turn, convey that information to potential buyers.
Once you have secured a trusted advisor, the sale process begins with the collection and analysis of your company’s financial and descriptive data. This leads to two other parallel phases: buyer identification and preparation of the descriptive memorandum and executive summary.
Buyer identification includes determining who might have a strategic interest in the company. Sometimes this group includes competitors, vendors, customers or other firms seeking to expand vertically or geographically into the business. Are there companies with a similar product base or facilities as yours? The advisor should also identify whether there are any financial buyers who might want to add the company to their portfolios. These potential buyers should be compiled into a "smart list" that is tiered and reviewed with you to determine if any additions or deletions should be made.
“It’s not as simple as taking out ads in the Sunday newspaper or sending out mailers,” said Kenneth Serwinski, Senior Managing Director of Prairie Capital Advisors, Inc. “The smart list is carefully cultivated from highly qualified prospective buyers. We do a fair amount of heavy lifting in terms of scrubbing the list so we can identify a strategic connection.”
While the smart list is being polished, the advisor will prepare a descriptive memorandum, which anticipates as many of the prospective buyer’s questions as possible. A brief and anonymous executive summary is culled from the memorandum to give prospects a sense of the opportunity, which is sent to prospects prior to the execution of a confidentiality agreement.
“The goal is to pique the interest of prospective buyers without revealing important confidential information too soon,” said Robert Gross, Senior Managing Director of Prairie Capital Advisors.
Once the smart list is approved, “blind” contact is made. Prospective buyers interested in learning more about your company are then required to enter into a non‐disclosure agreement; once that is in place, they are sent the descriptive memorandum and given a deadline for their initial written expression of interest. The prospects are then screened further and those that are deemed probable buyers are scheduled for due diligence. “As financial advisors, it’s up to us to be continually handicapping the field to ensure the buyer is suitable and capable of getting the deal done,” Gross said.
Finally, a deadline is set for the delivery of letters of intent from multiple parties. Your advisor will help you review the offers, understand their differences and choose the best one. “By the time you receive the letters of intent, you’re only halfway home,” said Serwinski. “There is still considerable negotiation and due diligence that must take place.”