Successfully selling a business takes a significant investment of time and energy. Transitioning the company you’ve worked hard to build should be executed in a way that achieves your primary goals and objectives – you want to do this once and do it right. For optimal results, it is important that three key elements are in alignment when starting a sale process: 1) your personal readiness and timetable; 2) the company’s financial health and preparedness; and 3) the market conditions impacting your industry, the specific buyers you will approach and the M&A market in general. Very rarely will these three factors synchronize perfectly, so it is in every owner’s best interest to think about this very early on, begin preparations as early as possible, control what elements they can, and strike when the right timing presents itself.
Conventional wisdom states that everyone exits their business someday, and it only happens one of two ways: on your own terms or on someone else’s. Whether it’s on your own terms is entirely dependent on preparation. In general, a business owner could need between 5-7 years of proactive measures and planning before the three factors above all align for the optimal time to sell. If business owners begin with the end in mind, they carry a sense of what they are building toward and how they would ideally like to leave it. A company carries value for the owner not just in monetary terms, but also in corporate culture, legacy, and product permanence. Deciding which factors are most important to maintain and uphold through the sale process will direct who the best candidates are to take over when you choose to step away.
Simply put, a lack of preparedness is a lack of control, willfully minimizing the amount of say you’ll get in how much money you’ll make, how your employees and services will continue in your absence, and who will control your legacy moving forward. A business can never do too much to get ready for that eventual decision, and with plenty of time to organize and collect necessary data and information, it need not be an overly stressful occasion. By developing a transaction strategy and committing to long term compilation and upkeep of key due diligence documents and materials, the sale process can become a natural phase of company transition that you and your senior executive team have planned and prepared for.
Perhaps the most powerful tool in your arsenal to achieve this is the collection and organization of corporate records, financial statements, management reports, employee files, legal documentation, contracts, permits, etc., in one organized, long term storage system. These cloud-based secure Virtual Data Rooms (or VDRs) have become relatively inexpensive and can be set up many years in advance of a sale, or even if plans for selling the business are a distant thought. In fact, initiating a companywide standard operating procedure of producing and storing all key informational, logistical, and transactional records on a monthly basis as part of your standard financial closing process can help to infuse your corporate culture with organizational preparedness for future business transitions of all types, not just a potential sale. Why scramble to gather and formulate such data with an end in sight, when you can start from the beginning, or at least a few years out, with such practices as standard operating procedures? A detailed and up-to-date VDR where your staff gets used to posting all important information every month is simply a best practice in running your company.
Another factor to consider in preparing for a sale may be reducing or eliminating the debt burden carried by your company prior to initiating a transaction process. Carrying too much debt can reduce the viability of or eliminate entirely your ability to consider certain types of transactions, structures or even types of buyers that may have been most attractive to you. Both a recapitalization of your company and the prospect of creating an Employee Stock Ownership Plan (ESOP) can be off the table if you haven’t managed your debt load well ahead of sale. Although using debt can be an effective tool to grow your business to the size and scale that might allow for a larger transaction, a business with modest or no debt can consider a wider array of sale options that may better fit your goals.
Whatever your timing, strategy, and preparedness level, a good advisory partner can provide the insight and process necessary to execute the best possible transaction for you given your current set of circumstances. What sets Dunn Rush & Co. apart from our competitors is that before joining our team, every one of our managing directors has been an owner and CEO of a middle-market business and has worked on financing, buy-side and sell-side transactions as both an owner and an advisor.
We are uniquely positioned to manage both the logistical and emotional process that our clients go through, providing insight and analysis earned by sitting in your seat and walking a mile in your shoes. This enables our advisory team to free the owner/operator from getting consumed by the process at the expense of the business itself—allowing our clients to remain focused on running their business throughout the process and maintain the solid financial performance necessary to get the optimal transaction over the goal line.
“If you don't know where you're going, you might wind up someplace else.”
In my 40 plus years on Wall Street, I have met regiments of investment bankers. There have been none – i.e., not one – with the combined talent and integrity of Kevin Dunn.
John Adams, Founder, Adams Harkness & Hill and Chairman, Canaccord Adams (US)
When I decided to sell my third generation, family business, I had many concerns. I wanted to be represented by an Investment Bank who had a strong reputation in the mergers and acquisition market, knew the market we participated in well enough to target likely interested parties, and who would manage the process of the transaction with various family members with various personal interests.
Betsy Alden, Former CEO and Owner, Alden Products
Kevin and Greg helped me work through a very complicated series of simultaneous acquisition opportunities. They lined up and negotiated the necessary equity and debt financings, and worked through all the issues to get the best deal closed in tough market conditions. They gave me great advice throughout the process and did whatever it took to help me get it done.
Pat Purcell, President & CEO of Herald Media