Selling A Business
The M&A process will involve a series of complex steps, each of which, need to be meticulously executed, if the seller's goal of maximizing the value and the final proceeds from the sale is to be achieved.
A thorough evaluation of your company is the first step in the M&A process. Knowing what your business is worth will help you determine when to sell it and how best to prepare it for sale. By understanding the value of your business and the characteristics that contribute to and detract from value, you will be in a position to make informed decisions to optimize the proceeds from an eventual sale.
The evaluation identifies the potential fair market economic value of your company. The process is both quantitative and qualitative in nature. It includes a full assessment of your company's strengths and weaknesses, detailed financial analysis - including recasting and pro-forma projections supported by market research, and the application of various valuation methods. In addition, Matrix's valuation methodology incorporates our knowledge of and experience in selling middle-market businesses.
Developing an Exit Plan/Defining Personal Needs
Once you decide to sell your business, it is best to outline your priorities and objectives before we begin the time-consuming, complex and emotionally taxing marketing process. Working with your M&A professional, you need to explore the deal issues that you are likely to encounter in the market and discuss the various pricing structures that you may be offered. By defining your personal needs and the risks you will and will not accept up-front, you will be better prepared for the selling process.
The universe of potential buyers is diverse, and reaches far beyond the anticipated acquirers such as known competitors and employees. The buyer universe typically includes public companies, large private corporations and private equity groups. Initially, we approach the buyer strategy much as we would a new product launch, identifying categories of buyers that would be attracted to your business for access to one or more of your company's products or services, patents or licenses, production facilities and capabilities, market share, customer base, geographic territory, skilled employees/intellectual property or suppliers.
Once we identify the types of buyers, we then look for prospects that fit our size, location, and line-of-business criteria. Our buyer database contains information on many thousands of active buyers -- individuals, corporations and equity groups -- this buyer database helps us to identify strategic buyers that may have the most to gain from the acquisition of your business.
Professional marketing materials combined with a tightly controlled marketing campaign produces the best results. The documents required for an effective marketing campaign include a Confidential Business Profile and a Confidential Business Review.
Confidential Business Profile
Initially, we present prospective buyers with a Confidential Business Profile on your company. This document is a brief, blind profile used for capturing buyer interest while maintaining the confidentiality needed to protect your business. It is written to appeal to strategic or appropriate buyers and to motivate them to sign a Confidentiality Agreement, which allows them to learn more about the acquisition opportunity while maintaining the privacy of those disclosures.
Confidential Business Review
The Confidential Business Review is an extensive and comprehensive review of your company. This document contains all the details of the business - financial, operational and marketing. It is supported by independent, third party industry research and extensive financial analyses of your business.
Screening Preliminary Offers
For the protection of our client, we work to ensure that the objectives of potential buyers are aligned with those of the seller, and that the buyers have the motivation and ability to complete the transaction.
The Matrix marketing process strives to simultaneously interest multiple buyers in your company, a strategy designed to create a competitive environment in an attempt to generate the best offers.
Typically, during this step, we analyze, evaluate and compare each offer, reconciling the price and structure with your personal goals and objectives. We then negotiate -- simultaneously -- with the preferred buyers. By emphasizing the value and synergies of the transaction, from the perspective of each buyer, we work to optimize the transaction price and terms.
During this process, the prospective buyer more than likely will thoroughly examine all aspects of the business. The buyer will bring in teams of professionals including bankers, attorneys, accountants, business operations managers, tax experts and others. The due diligence process must be meticulously managed to: (1) ensure that the buyer fully appreciates the value of the company; and (2) resolve the issues that inevitably arise in each transaction. This is the most sensitive part of the transaction and requires proper documentation and expert guidance to maintain momentum while preventing erosion in the proposed price and terms -- or the transaction itself.
Definitive Purchase Agreement
Once satisfied that they have fully investigated your company, the prospective buyer presents a Definitive Purchase Agreement. This document outlines the final price and structure of the transaction as well as the financing sources, representations and warranties, indemnifications, expected role of the owner after the sale, any necessary EPA audits and regulatory approvals and other conditions of the sale.
Closing the Transaction
After painstaking effort, attention to detail, and directing and controlling the transaction at crucial junctures, both parties sign the contracts and the buyer transfers the funds. The transaction is closed.
You have finally achieved the liquidity you have earned from building - and selling - a successful business.
Since its inception, Matrix and Associates M&A has capitalized on its
structure, resources and capabilities to provide effective services to private
business owners who seek to maximize the financial reward from the sale or
other transition of their business. In doing so, we evaluate the business,
strategize on the transactions that will help the business owner attain their
goals, effectively position the business to best execute the exit strategy,
develop a marketing strategy from the perspective of the buyer, and guide
the entire M&A process.
Business owners are experts at operating their companies; however, many find themselves unprepared for the day when, inevitably, they will exit the business. They find that they may be overwhelmed by the level of detail and amount of planning involved in developing an exit strategy to successfully achieve their liquidity goals through the disposition or transition of their business. Most recognize that being prepared with well-defined options and decisions based on facts are essential to an exit plan that will yield the most rewarding results, they need help however in defining what course they should take. Matrix and Associates M&A helps business owners sort through the information needed to value the business and best position it for sale.
Beginning with an evaluation of your company, Matrix and Associates M&A uncovers the value of the business to determine the potential for success in the market. Then we prepare a marketing document to attract prospective buyers and guide the business owner through all aspects of the deal.
Each year, thousands of middle-market companies change ownership and, although
the reasons for selling may vary, the goal of the sellers remains consistent:,
to maximize proceeds from the sale.
Too many of these business owners do not realize the full financial benefit from this important liquidity event because they are unprepared for the complexities of the process and, as a result, make one or more common mistakes. This is unfortunate because most owners will have only one opportunity to turn his or her largest single asset into liquid equity, one opportunity to benefit both financially and personally from all the years invested in the business.
Entrepreneurs who seek to maximize proceeds from the sale of their companies need to be proactive in defining their objectives, identifying their options and developing a thorough understanding of the many elements of the sale process. Those who are well prepared will be positioned to maximize the potential rewards and reduce the risks by avoiding some of the most common and costly mistakes.
The Matrix Process is designed to minimize risks and provide quality representation and support to assist business owners who seek to reduce risks as they enter the market.
Some of the most common mistakes include:
Not Knowing or Understanding the Value of the Business
Value is not obvious, nor is it constant or consistent. The value that an accountant places on a business can vary significantly from its value in an M&A transaction. One works strictly with financial statements, while the other considers the many subtleties that determine market value, which is what buyers will ultimately pay. One focuses strictly on past performance, while the other looks at both the past and the future. One relies on tangibles, while the other examines off balance sheet assets such as customer lists, proprietary technology, brand names, organizational strength and other intangibles or unique aspects. Some business owners assume that value can be determined by a single accounting formula or a multiple of past revenue or profits. These informal valuations, generally, simply apply averages and disregard the vast differences among individual companies.
Not Preparing a Formal Exit Plan
Each business owner will someday exit his or her company - either through sale, transition or succession. Most, however, are so involved in the day-to-day challenges and activities associated with running the enterprise that they lose sight of this reality and, therefore, neglect to prepare. The fact is, if an owner does not prepare for the time when he or she will leave the business, the event is not likely to yield the expected or desired results. Exit planning takes time and requires clear definition of objectives and careful consideration of appropriate options. An exit plan is an action strategy designed to protect the net worth of a business owner and maximize the value of the business - done properly, it provides a blueprint for satisfying personal needs and achieving financial objectives. It places the business owner in control of . why, when and how to exit. Done poorly, or not at all, there is a risk of being controlled by circumstances and minimizing the financial rewards.
Not Seeking Professional Advice
The sale of an entrepreneur's business is frequently the largest and most important financial event of his or her life - for most, it is an opportunity that will be presented only once. The successful sale of a business requires a carefully planned and methodically structured process in which each step is done right - the first time - when seeking to maximize the financial reward. While owners are expert at successfully running their companies, few are prepared to navigate this complex process and, therefore, they are at a distinct disadvantage. The right professional intermediary can provide invaluable advice, support and representation - most importantly, the benefit of experience that can make the difference between a successful transaction and a missed opportunity.
Selling at the Wrong Time
Timing is everything to many successful business transactions. It is equally important when seeking to maximize the value of a business at the time of a sale. The time when a business enters the market can determine how quickly it sells and at what price. Selling when the market is right presents an opportunity to maximize proceeds. On the other hand, entering a market that may be less than ideal could substantially erode value. One of the costliest mistakes can be to allow factors such as age, unplanned retirement and other similar considerations to dictate timing. Taking control of the process means being ready to act when the time is right and not taking the risk of being controlled by circumstances. This means being proactive, preparing documentation, watching the market, testing the market and constantly reassessing exit strategy objectives in terms of external factors and changing market cycles.
Selecting the Wrong Buyers
Too many business owners waste valuable time and effort on potential buyers who, typically, may pay less. All too often, they focus on prospects they already know - vendors, customers, employees or competitors. Buyers such as these frequently lack the means and motivation to pay what a company is really worth to more sophisticated buyers who have strategic acquisition goals and are willing to pay accordingly. In contrast to local buyers or those known to the business owner, some of the best buyers are often among the most unexpected acquirers. For example, companies - both public and private - often pay premium prices to acquire seemingly ordinary businesses that offer a synergistic advantage to their current operations. Private equity groups, sophisticated buyers who are in the business of acquiring companies, are among the most desirable potential buyers
Not Clearly Understanding Buyer Motives
Understanding buyer motives - and why a particular company may be important to them - can be of great benefit to a business owner when the goal is to optimize value. For many corporate buyers, acquisitions are an integral part of a preferred strategy for achieving growth and expansion goals, improving operating efficiency or increasing profitability. Many have found that it is easier and most cost- and time-effective to buy market share than to build it internally. Business owners who can view the sale process from the perspective of potential buyers tend to benefit the most when it comes to maximizing their exit options and maximizing proceeds from the sale.
Improper or Incomplete Documentation
Quality documentation is essential to attracting the attention of the best buyers - and capturing their interest. Documentation prepared from the perspective of potential buyers can turn a company's past into a valuable, saleable future. Complete and well-prepared documentation will present a realistic, defensible foundation for the company's value and substantiate buyer expectations of future earnings - return on investment. It should give potential buyers a basis for meaningful comparison with other investment opportunities and provide a detailed, accurate and strategically compelling portrayal of how the business is likely to perform in future years.
Dealing with Only One
A single buyer can gain control of a transaction and weaken the seller's negotiating position. Without other prospects, the seller has fewer options and limited leverage in terms of obtaining the desired price and terms. Multiple buyers, on the other hand, create a competitive environment with a sense of urgency. This tends to maximize the market value of the business and facilitate the transaction - key benefits to the seller.
I am considering selling my business. What do I do?
To speak to an M&A professional, call: 858-753-1944.
How long does it take to sell a business?
Based on our experience, it takes, on average, seven months to sell a business.
Of course, sometimes it can take less time and sometimes takes longer than expected.
Who pays Matrix's fees?
Matrix is paid a success fee by the seller and the amount is determined by the size of the transaction.
Are you industry specific?
No. Matrix and Associates has worked with a substantial number of diverse businesses from a broad range of industries.
How does Matrix find buyers?
We source buyers primarily from our proprietary database that includes private equity groups, public companies, large private companies as well as individual buyers.