Four Strategies for a Successful Business Sale

The M&A market is on fire, and not just among massive corporations. Small and mid-sized companies are increasingly..

The M&A market is on fire, and not just among massive corporations. Small and mid-sized companies are increasingly merging with larger companies who are flush with cash. Prices have risen by 30% in just three years—enough to tempt just about any family business into a sale. If you’re contemplating putting your business on the market, a little planning goes a long way. Here are four strategies to ensure a successful sale of your business.

Analyze Your Exit Options

As you contemplate an exit, be prepared to analyze all potential options, as well as any barriers such as tax issues and compliance issues. Some steps that can improve your value as you move toward a sale include:

  • Evaluate your resources to determine whether you have a team who can manage a full-time deal process.
  • Consider the basic goals of a potential exit.
  • Anticipate possible issues, and address as many as you can.

Assess Transaction Readiness

You need to critically and thoughtfully assess your ability to execute a deal. An outside advisory team can help with this and may be able to construct an initial valuation to help manage expectations. Some strategies that can help assess and define readiness include:

  • Consider the availability of collateral to support a sale.
  • Assess your readiness and willingness to respond to key questions that motivate buyers, such as issues of predictability, customer concentration, profit, and cash flow, reputation, pricing power, past performance, and ability to keep your current team.

See Things from the Buyer’s Perspective

It’s easy to get caught up in your own hype or to become too emotionally invested in an entity you’ve devoted years of your life to. But valuation is in the eye of the beholder. Ultimately, you must be able to see things from the perspective of the buyer. Be prepared to address common buyer concerns, such as:

  • Whether they’ll need to invest capital or make operating improvements after the acquisition.
  • How quickly they can integrate your operations, customers, and culture with their own.
  • The role of sale value drivers such as R&D, technology, intellectual property, and human talent. There may be things you can do to improve the value of these factors prior to the sale.

Build Your Exit Plan

Many of the barriers to an exit often involve taxes. The right structure can reduce tax penalties, or even be tax-free. While most sellers prefer a stock deal, buyers typically want an asset sale. The right advisor can help you balance these interests and find ways to minimize all parties’ tax liability. Consider the full range of options, including refinancing, ERISA, sale to benevolent acquirers, or a transfer to heirs. You must also understand the ramifications of each potential scenario, and develop a story for the acquirer that offers a compelling vision, including prospects for growing the business.

As you move closer to the sale, integrate into your own metrics and forecasts the model you think buyers will likely use to value the company. Prepare an informational memorandum and build presentations specifically designed to address the concerns of investors.

You’ve spent years, maybe even decades, building a company. Take time to devote the focus necessary to successfully exit the business.

Back to Insights