Often when we meet with potential clients and do our initial compatibility analysis to ensure that our services are a good match for the company’s, we are frequently told, “I sure would like to take care of my wonderful, loyal employees and sell the business to them.” Although we find this to be a noble sentiment, as history has shown, selling to one’s employees carries big potential risks.
One of the significant services that Generational Equity provides to its clients is the ability to help the business owner look at his/her business through the lenses of potential buyers. For many this is a hard, painful concept to fathom because, as one client told me a few years ago, “No one likes to be told their baby is ugly and needs improvements.”
But just like your doctor, we tell you the tough news so you can then analyze your company as a buyer would and anticipate, create, and implement strategies to address their possible concerns. The great news is that thinking like a buyer and improving your business does not have to be rocket science and in many cases strategies do not have to be fully implemented in order to address buyers’ concerns. For lots of folks, just being on the path is what matters to a buyer because most realize that the final outcome, the goal, is an ongoing path that continues for perpetuity.
How do you begin to think like a buyer and objectively review your business?
I was meeting with a prospective client in our offices in Dallas a few years ago and as we discussed the business and its future, he sheepishly turned to me and said,
“You know I used to think that I was key to the business; 20 years ago when I first started it I was. But last year I took my wife on a month-long vacation to Asia and was in areas where phone and internet access was limited. I mean, I went for days without calling the office and when I did, I learned that everything was going fine. It just showed me that I was no longer key to the operation.”
Now, he was lamenting this, sharing that he no longer was the key decision maker on daily issues that had to be handled (and even some of the larger strategic ones). But with a huge smile I told him that he should look at this as a positive, not a personal negative (yes, his ego was impacted), since he had solved one of the major issues that buyers are concerned about – succession planning.
So you’ve taken steps to ameliorate the risks buyers may perceive in your company and you've invested in fantastic documents that truly portray your company in the best light. Now you are ready for the most important step of all: identifying and reaching out to appropriate buyers.
This post is the second in our series designed to help business owners discover the key steps involved in successfully finding a buyer/investor. Earlier this week we looked at four risk areas that buyers focus on and provided ways to impact them, which would enhance the company’s valuation and sale-ability.
Today we look at a step that is often overlooked by sellers: creating key documents to protect the company and attract professional buyers.
Today we begin a three-part series on the steps you will need to take to effectively sell your company. Entitled “How Do I Sell My Business?” the series will look at the key components of closing a transaction with an optimal buyer. The first part, today, will examine perhaps the most important step of all in your process: prepping your company for sale.
The caliber of our deal makers is not only reflected in the significant number of deals they close annually and the industry accolades they win year after year but it is seen in their thought leadership and how they are sought after by a variety of leading industry publications on a regular basis for comments on trends and issues.
A perfect example of this was a recent article published in the online version of Security Info Watch Journal, a publication focusing on developments and concerns impacting the security industry. We had three deal makers quoted in the article, Your Business on the Block, that focuses on M&A activity in the security industry, specifically the proposed merger of ADT with Protection 1 via the equity firm of Apollo Global Management LLC.
Here are a few of the key ideas that our team shared in the article:
A few days ago we looked at interesting data based on surveys compiled by CMF Associates, a financial and operational consulting organization that works with equity firms. CMF Associates has begun conducting a survey they will do on a quarterly basis of sell-side investment banks and M&A advisory firms that specialize in working with companies valued up to $75 million.
The data echoed what we have been saying for years: Professional buyers love smaller companies. Today I wanted to take another look at their 1st quarter survey and determine who these buyers are.
My question: What types of buyers are actively acquiring smaller companies in 2016?
A few days ago we looked at PitchBook’s overall first quarter private equity (PE) activity report and found that smaller deals continue to be popular with this class of buyers. Recently the research firm did additional analysis to examine the data further, and released a report focusing on middle-market and, even more telling, lower middle-market PE activity. For a full definition of their terms, please see the footnote.
CMF Associates, a leading financial and operational consulting organization specializing in working with equity firms, has begun conducting a survey on a quarterly basis of sell-side investment banks and M&A advisory firms that specialize in working with companies valued below $75 million. Using these surveys, they plan to publish the results in a “Down Low” report. The first installment echoed what we have been saying for years: Professional buyers love smaller companies. This can be clearly seen in both revenue and EBITDA survey results shown below.