For owners looking to sell their business, it can be a daunting and confusing task. Not only the process itself, but hiring the right team can be difficult, especially when one isn’t well versed in the mergers and acquisitions industry. There are two main types of firms who sell businesses – business brokers and M&A firms (investment banks). Although the term business broker may seem to better represent “selling and marketing a business”, it is rarely the preferred approach for owners of larger companies. Business brokers typically sell businesses the way a real estate agent might: list and wait for the buyers to come to them. Investment banks are the preferred choice for larger companies as they take an active approach to marketing the asset.
Investment banks follow a tailored deal process on every transaction, advising the seller on all aspects of the transition, including timing, identifying financial stumbling blocks and opportunities, management preparation, identifying potential buyers, and making sure to properly convey and highlight the true potential value of the company.
The first step is a rigorous preparation phase that involves a detailed review of the operations and financial performance of the business, identification of its key people and intellectual property, assessment of its growth potential, and investigation of trends and opportunities in the industry – both operationally and in the acquisition markets. As a part of this process, the potential value of the company on the open market is estimated using financial pro forma’s, discounted cash flow and transaction analysis.
Next, a good investment bank will actively market the company, putting it in its best light and creating a controlled auction that tends to draw out the highest possible offer, or that creates favorable terms for the seller.
Here is a quick overview of the benefits to hiring a qualified investment bank:
- Simplicity: Selling a business is a very detailed process and the complexity is often underestimated by sellers. Unlike a stock or a bond traded on the public market, you need to create the market for a privately held business. In short, you cannot click “sell” on a trading platform. You need to meticulously prepare the asset for market and plan for any objections or questions that may arise in the marketing and due diligence phase of the process.
- Optimal pricing and terms: The ultimate objective of a well-designed process is to help the owner receive the best valuation and terms. This is no easy task and requires careful planning and thoughtful execution. Everything from the materials you prepare, the buyers you approach, and the relationship you build with buyers can help increase value and minimize unfavorable terms in a transaction.
- Managing objectives: In addition to valuation and terms there can be several other objectives an owner hopes to achieve in the sale of their business. A few common examples would be employee retention, the business’s legacy, maintaining community involvement, or managing family dynamics. Recognizing and balancing these objectives is important when preparing the prospective buyer list and understanding their intentions with the acquisition. It is not uncommon for a lower offer to be the buyer of choice based on the common values they share with the seller.
- Time: Successfully preparing, marketing and completing a sale of a business can take 6 to 9 months. During this process it is important to keep revenue and profits on track to maintain buyer confidence. A qualified investment bank can help an owner and their management team stay focused on running their business instead of obsessing over the minutiae that comes with selling a business.
- Broad advice: There are many factors that go into a transaction. Having a team who can help the owner navigate challenges beyond just of closing the transaction – such as acquiring proper legal, tax or wealth management advice – is critical to a successful outcome. In addition, many times only a limited number of people within the company are aware of the potential transaction, so having a partner outside the company and family to help navigate critical decisions can be priceless.
In conclusion, selling a company is a once-in-a-lifetime event for most business owners. Having built a company over the course of decades or generations, the owner hopes to generate the greatest value for all the stakeholders involved. We provide a full range of sell-side advisory services catered to each client’s needs. Below is a list of the driving principles we bring to each engagement:
- Provide insight on what increases value in order to assess proper sale timing and maximize value
- Design a process which maximizes value and minimizes risk for the client
- Make sure confidentiality and negotiating leverage is managed throughout every engagement
- Educate clients on the common pitfalls that can occur during the sale process
- Listen to clients, bring perspective, and manage expectations from start to finish
- Provide insight on how each critical decision will affect their personal financial security
- Be humble, and integrate partners as needed to ensure the best outcome for each client and their family
HOW WE HELP
The Rainier Group is a Northwest based business advisory and investment banking firm with offices in Washington and Oregon. Over the last 30 years we have worked with hundreds of privately held companies throughout the United States on a variety of assignments. We judge ourselves and our success on the actionable results we achieve for our clients.