The Five Most Important Considerations When Selling Your Business
Two M&A experts share valuable guidelines for navigating a process that is always complicated and often overwhelming for business owners.
Are you a thriving pet company that is considering raising growth capital or exiting your business in the next few years? If so, navigating the twisting channels of mergers and acquisitions (M&A) can be costly and tricky if you aren’t prepared well in advance of implementing the process. Your chances of a sale going smoothly will be greatly enhanced by following some well-researched guidelines that we have learned in our combined 30-plus years of helping business owners buy or sell companies.
1. Know yourself, know your company and know what you want to do. Selling your company is a significant undertaking (oftentimes—other than starting your company—the most important business decision an owner will ever make). Educate yourself on the options at your disposal and give strong thought to the pros and cons of each. If you don’t know exactly what the ideal outcome looks like, maintain flexibility in your thinking and empower your advisors to create options for you. Are you looking to exit 100 percent, or are you considering taking on an equity partner? Those two scenarios can be vastly different in terms of how a sale process is executed, and you will want to discuss each of them in detail with your M&A advisor.
2. Purchase price is not the only consideration.
While purchase price is certainly important, there are many other considerations a business owner can and should evaluate. These considerations include, amongst others, cultural and strategic fit, contractual legal terms, speed and certainty to close. Certainty to close means that the buyer, amongst other considerations, has been fully vetted to ensure they have the resources to close the deal.
3. Start preparing for a sales transaction well in advance.
Make sure your personnel, systems, reporting and records are in order. Doing so will increase the value of your business, increase the interest you will attract, and increase the speed and certainty that you get to close. We recommend you pay particularly close attention to your accounting system and records, and make sure that you will be able to produce timely and accurate income statements and balance sheets. There’s virtually no possibility that a deal of any meaningful size (over a few hundred thousand dollars) can get done without them.
4. Hire good advisers and keep your eye on the ball.
Selling your company can be a full-time job and when combined with running your business, the situation can be overwhelming. A good accountant, a good M&A attorney and a good investment banker (the latter two engage in transactions for a living) can significantly ease the “brain-damage” of going through a transaction and allow you to focus the majority of your time on running the company. We always advise our clients to continue to do what is strategically right for their businesses and not alter the course based on the vagaries of the sales process.
5. Growth prospects drive valuation.
It’s important that your company continues to perform and grow (“grow” being a relative term) during an M&A process, and it’s crucial that you leave some gas in the tank—in the form of growth—for the next buyer. The more gas you leave in the tank, the more likely you are to command a premium multiple of EBITDA. In contrast, one of the worst times to sell your business is when your revenues are on the decline, as that will almost certainly result in a lower multiple.
While this list is by no means fully inclusive, taking these five considerations to heart will result in an easier, more enjoyable and more successful transaction.
Carol Frank is a managing director—business development at MHT Partners, a middle market investment bank, specializing in the pet industry. Prior to her investment banking career, Frank founded and operated retail, distribution and manufacturing companies in the pet industry. She served on the boards of the Pet Industry Distributors Association, Pet Industry Joint Advisory Council and The Pet Care Trust. A former CPA, Frank has an MBA from Southern Methodist University and a BBA in Accounting from The University of Texas at Austin. She can be reached at email@example.com.
Craig Lawson is a co-founder and managing director at MHT Partners and has more than 25 years of sell-side and buy-side experience. He brings deep experience with consumer products and co-leads MHT’s Consumer/Retail industry practice, with a particular focus on the pet industry. Prior to co-founding MHT Partners, Lawson served as a senior banker in the San Francisco office of Harris Williams & Co, Bank of America Securities and Bear Stearns. He holds an MBA from The Wharton School at the University of Pennsylvania and graduated with a BA from Tufts. He also holds the CFA designation. He can be reached at firstname.lastname@example.org.