Private business owners often face challenges during the exit planning process due by waiting too long, overestimating the business value, not considering all options, and disregarding the need for professional help. It's crucial to engage professionals like M&A advisors and tax consultants who can assist in the process, maximize business value, and handle tax implications. Proper planning helps ensure a profitable and successful exit.
The article discusses the importance and complexity of adjusted or normalized EBITDA in M&A transactions, focusing on add-backs, which adjust the EBITDA to reflect a company's financial performance accurately. However, these additions require careful handling, buyer agreement, and substantial documentation to maintain valuation integrity and seller credibility.
Cross-border M&A deals between Canada and the US offer expansion and risk diversification opportunities for companies, but also pose challenges. The process involves understanding tax and regulatory implications, navigating different legal frameworks, adjusting to employee benefits, and healthcare differences, dealing with currency fluctuations and foreign investment regulations. Despite challenges, these transactions may provide entry to new markets, technological advancements, and help businesses scale by tapping into the heavily linked economies of both nations.
Choosing the right method to sell a business is crucial. Sellers can decide between a negotiated sale with a few potential buyers, or use a narrow or broad auction process, with up to 50 and over 300 potential buyers respectively. The best approach depends on various factors such as the seller's objectives, need for confidentiality, speed of selling, and flexibility. A broader approach for marketable businesses may result in unexpected high-quality buyers and high valuations.
Estimating a business's value using "Comparables" brings in many variables that might lead to inappropriate assumptions. The actual value depends on market conditions, business nuances, and marketing strategies. Factors like the number of comparable businesses, timing, size, location, public vs private status, EBITDA adjustments, debts/liabilities, and stake size affect valuation. Additionally, database reports miss out on deeper insights accessible to Investment Bankers and M&A Advisors. Hence, comparables should only supplement other valuation techniques.
In M&A negotiations, it's crucial to establish "red lines" or deal-breakers early, aim for mutual gain, and keep key decision-makers involved. Unaddressed issues can result in deal cancellation at the last moment, wasting resources. Sellers' "red lines" often involve value, share structure, non-competition clauses and transition contracts and should be clarified upfront. A successful close is enhanced when all key decision-makers are engaged, critical terms addressed early and an open mind maintained to resolve issues.
In M&A, a "strategy-first" approach is crucial for both buyer and seller. While a buyer must create acquisition and post-transaction strategies, a seller must decide their objectives, whether maximizing selling price or seeking a buyer providing strategic advantages. A seller prioritizing strategic fit might face a delicate process, especially with few suitable buyers. However, establishing a commercial relationship can offer safe grounds for exploring synergies before revealing an intent to sell.
Identifying transaction priorities is crucial for both business buyers and sellers before going to market. Maximal value may not always be achievable and often involves structured deals, including earnouts or vendor takebacks. Considerations such as potential roles, control retention, and impact on stakeholders are also vitally important. Successfully shaping your approach requires clarity about your top priorities.
Choosing the right M&A advisory firm to sell your business involves aligning your business needs with the firm's expertise. Several types of firms cater to different marketplace needs: Business Brokers focus on small businesses; Niche M&A Advisory Firms offer specialized services to private companies; Lower-Middle-Market and Middle-Market Investment Banks deal with larger corporate finance activities; Bulge Bracket Investment Banks handle large-scale transactions. Understanding your business and the M&A landscape is essential when selecting the right firm.
The article discusses how business sellers can mitigate the potential risk of 're-trade', a situation when deal terms are revised negatively at the last moment. Key strategies include proper preparation before negotiations, carrying out due diligence from a buyer's perspective, outlining non-negotiable terms to potential buyers, having alternate options, and validating the buyer's due diligence. The seller should be wary of certain warning signs that a re-trade may be forthcoming, such as vague offers, inadequate due diligence, and poor understanding of the business.