WE recently conducted a survey of business owners who had sold their companies in order to better understand the issues and experiences they had encountered during this transaction process.
Selling a company can often be more than a business transaction – it can be a life transition.
Specifically, sellers were asked what factors influenced their decision to sell, the profile of the purchaser, how the sale experience differed from their expectations and advice they would give to other owners contemplating the sale of their businesses.
As you might expect, the theme of managing surprises was consistent throughout the interviews. Numerous times, interviewees cited “preparation” as the key to a smooth process and satisfying outcome.
Sellers were also asked to reflect on the most difficult challenges of selling their businesses and to cite five to ten things they wish they had known before beginning the process.
The most challenging parts included:
Understanding the fair value of the business;
Running the business whilst simultaneously pursuing a sale;
Negotiating the legal document including disclosure and warranties;
Due diligence process.
The most common things they wished they had known were:
It is okay to walk away if you want to. Do not fall in love with the deal or the people.
You do not want to negotiate with only one firm, so design a process to create competitive tension to attract multiple buyers in parallel.
You do not have a deal until the due diligence is completed.
Artificial deadlines do not help. Set firm criteria up front if possible.
A “squeaky clean balance sheet” is a must.
Refrain from setting lofty expectations. Build “what if” scenarios and contingency plans.
It is often said that “hindsight is a wonderful thing”.
Sellers were asked, “If you were to sell a business again, what would you do differently?” Some of the more popular responses include:
“Selling on your own is full of risk.”
“I would stratify and narrow the list of buyers more up front.”
“I would prepare more of the due diligence in advance.”
“Overseeing negotiating by conference calls is not productive. It should be face-to-face.”
Perhaps the most revealing question we asked former business owners was this: What are the three most important pieces of advice you would give to someone contemplating the sale of their business?
Be certain you want to sell the business.
Assemble a team that not only understands your business, but also understands the ins and outs of selling a business. Operating a business demands different skills to selling one.
Be prepared to give up some control if required to report to someone within a more rigid corporate structure.
Interviews with recent sellers drew a consensus that the process of selling a business is lengthy and complicated.
Consequently, things rarely go perfectly. Second, be certain of what you want and stick to your goals.
In summary, the key to staying on the right road is to have the right people on your team and the flexibility to adjust to unforeseen challenges.
Frank Holmes is a founder partner of Gambit Corporate Finance LLP, a mid-market M&A advisory firm based in Cardiff and Birmingham.