Advice for Preparing for the Sale

Here is a general set of suggestions that I have sent folks regarding preparing for sale. I want to be clear that there is no set formula that is going to tell you what the final bidders are going to come in at, these are simply some of the most common traits.

In general, it is usually wise to run the business as though you would never move towards a sale, which keeps your eye on quality and prevents any inadvertent efforts to artificially inflate the company’s value. Of course, you are fine in taking steps to minimize taxes since most buyers look at the financials in pro forma and can rationalize what you have done to best position the business.

We typically suggest that a company has an Audit the years prior to going to market however for smaller entities you should consider doing a review a year or 2 out before sale.

Below are some common traits that buyers look favorably on:

Attractive growth rates (20%+ growth)
Recurring, subscription-based, predictable revenue
Cost structure and operating leverage

Strategic and financial buyers consider numerous factors when determining their interest level in acquisition candidate, such as:

  • Addressable market opportunities
  • Market size and growth characteristics, penetration, fragmentation
  • Competitive landscapeoPosition relative to competitors, scarcity value
  • Differentiators
  • Uniqueness and proprietary nature of technologies, products and services
  • Scarcity value
  • The existence of comparable companies
  • Validated value proposition
  • Demonstrated customers’ return-on-investment (“ROI”)
  • Barriers to entry
  • The risks of other companies replicating what you have created
  • Customer retention ratesoWins, losses and the reasons why
  • Customer concentration
  • Impacts of losing top customers
  • Growth opportunities
  • Ways to grow the business organically and through M&A
  • Sales pipeline
  • Confidence when analyzing financial projections and growth opportunities
  • Management team
  • Depth and proven ability to grow the company

Of course, I can’t leave out why you should hire and advisor 😉

Having an investment banker working on your behalf signals more serious intent on completing a transaction, frees up management to focus more on running the business during the intensive sales process, and provides support during the due diligence phase. Most importantly, the financial advisor will help create competition for your company.More often than not, value is left on the table by not going through a sales process. It may be common sense but having more than several potential buyers interested in your business maximizes its value, and an advisor running the auction process can make all the difference.

To be honest a few cons to hiring an advisor can be that they can drive some buyers away from the process and depending on the size of the transaction advisory services can be cost prohibitive.I hope this information proves useful. Feel free to reach out to me anytime.