5 ESSENTIAL ELEMENTS OF A BUSINESS SALE TKO MILLER’S
www.tkomiller.com
TKO Miller’s 5 Essential Elements of a Business Sale 1 2 3 4 5 Understanding Your Objectives Presenting the Correct “Story” Identifying the Correct Universe of Buyers Create Competition Among Buyers Maintain Leverage During the Transaction
Topics Include:
• Discusses the proper way to prepare for a sale • Explains the importance of timing during a transaction • Describes the process your investment banker uses to prepare a valuation • Walks sellers through the due diligence process and what to expect
2
Understanding Your Objectives STEP ONE: Usually, objective number one is to get the most purchase price. Other objectives can be personal: I want my plant to stay open, I want my name to stay on the business. There is no such thing as a “standard” sale process. By establishing your objectives prior to beginning the sale, you will have a greater opportunity to attract the right buyers and end up with a structure that works for you. PRO TIP Don’t be afraid to mention all your objectives to your investment banker. If you want your son to be able to intern in the finance department, put that on the table early. It is always best to get your requests out early in the process.
3
Presenting the Correct “Story” STEP TWO:
It is incredibly important to control the message when you are selling a business. Controlling the message means that you will, of course, highlight the company’s strengths, but you will also discuss the company’s weaknesses. Examples of company strengths: strong recent growth, blue chip customers, new customers, new investment in equipment, great management team, Examples of company weaknesses: customer concentration, residual legal issues, customer losses, reduced profitability An Information Memorandum, prepared by your investment banker, will include a tremendous amount of data. This allows prospective buyers to form thoughts on valuation. In order to make sure you receive offers that you can compare, you must make sure that every potential buyer receives the same information. PRO TIP Making sure every buyer receives the same information is very important during the sale process. We break this rule occasionally when there is a direct competitor in the potential buyer pool. In that case, we might redact customer, employee and vendor information.
4
Identify the Correct Universe of Buyers STEP THREE: Not contacting enough or contacting the wrong, buyers is the easiest way for sellers to leave large amounts of money on the table. You have to cast a wide net that will catch the “outlier” valuation. Part of the value that your investment banker brings to the table is the relationships that he or she maintains. There are over 6,000 private equity (or financial buyers) and your investment banker will know those that are interested in your size business and in your industry. One of the reasons to choose an investment banker in your industry is because of the knowledge of strategic buyers they will have. Strategic buyers can be difficult to contact, so having an investment banker experienced in your industry is critically important. PRO TIP Sellers often think they know who will buy their business. There is usually a group of potential buyers that have been contacting the owner for some time. The groups that have reached out to the business owner are very rarely the ultimate buyers when a wide net is cast. In our experience sellers do not know who the buyer of their business will be.
5
Create Competition Among Buyers STEP FOUR:
Business owners are often approached by a single buyer. These solicitations can seem harmless. As a seller, the way to maintain and keep power during a transaction is to always have alternatives. Running a process that delivers multiple interested buyers is how a business owner can demand the highest possible valuation. Even if you think you are getting a great valuation from one buyer, there is still a lot of negotiating to be done. Having only one buyer means that it will be difficult to negotiate terms and conditions, which can be just as important as purchase price to the seller. Buyers are always better at buying than sellers are at selling. PRO TIP Don’t talk exclusively to one buyer even if that buyer presents you with an unbelievably good offer. By talking to only one buyer, you are giving away your leverage and things are bound to disintegrate later in the transaction
6
Maintain Leverage During the Transaction STEP FIVE: Many business owners “give up the fight” after the initial valuation has been received. Don’t! You must continue to work through the end of the transactions. Control the flow of information to maintain confidentiality. Move quickly. Speed always works to the advantage of the seller. Don’t be afraid to go to another seller if things get really unbalanced. PRO TIP Like any good negotiation, your willingness to walk away will contribute to the amount of leverage you have. Get leverage in a transaction by having multiple buyers. Keep leverage during a transaction by being willing to use them.
7
Free Valuation If your company is above $10 million in revenue, take the proactive step of learning its value. There is no obligation to sell your business once the valuation is complete. Don’t rely on multiples for valuing your business. This doesn’t measure the value of your business specifically, and is an incomplete and often inaccurate method. If you have been approached by a potential buyer, get the free valuation to make sure that you understand the value of your business .
INCLUDED • Valuation based on current market conditions • Analysis of what type of transaction would best meet your needs • Outlook on valuation given company growth objectives and market direction
Board of Directors in a Box TKO Miller will perform a risk-free analysis of your business based on how it would be received in the marketplace. Even if you don’t intend on selling your business now, TKO Miller will present you with a list of areas that are currently detracting from value. As a business owner and manager, this list can be something that you address months or years before you sell your business.
8
SELLING YOUR COMPANY Sell-Side Sale Process
Phase 1: Data Gathering & Marketing
Phase 2: Diligence
Phase 3: Negotiation
9
“I can’t believe we got this company so cheaply”
Don’t be this toast, check out our resources: www.tkomiller.com/resources Free Additional Resources
Bringing Big Bank Experience to the Middle Market tkomiller.com
Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10Made with FlippingBook - professional solution for displaying marketing and sales documents online