When selling a business, the timing and approach to engaging with potential buyers is crucial. A measured approach is necessary to maintain buyer interest and avoid potential pitfalls. Clear objectives should be defined before initiating discussions; their interest and strategic fit should be assessed before discussing value. Testing the waters before being prepared to sell or without realistic expectations can lead to negative consequences. Engaging an experienced M&A advisor can help determine a value estimate and facilitate negotiations. Sequentially engaging with buyers individually may complicate transactions.
Negotiating a successful M&A transaction requires flexibility and understanding of both parties' key priorities. Listening to learn can expose hidden assumptions and enhance compromise. Sometimes, flexibility on purchase price, deal terms, and process timing can increase the chances of a successful close. Having multiple financing options also aids closure. However, parties must be ready to abandon deals not meeting their top priorities. Ensuring a transparent process where key information is shared timely will boost the likelihood of a successful transaction.
Selling a business can be challenging, especially as buyers closely analyze potential risks. These could be risks that sellers, due to their familiarity with the business operations, may see as immaterial. Buyers often focus on the inherent risks rather than the upside potential and discount their offer to cover perceived risks. It is important for sellers to understand this fear-based perspective, and objectively identify all conceivable risks in their operations, market, employees, suppliers, etc. Demonstrating flexibility around deal structures can help alleviate buyers' risk concerns, thereby enhancing the potential for a successful sale.
An aggressive acquisition strategy is an effective way to swiftly scale a well-financed business, but it comes with notable risks that need addressing. A well-planned acquisition strategy enhances chances of successful deals and strengthens business competitiveness, besides driving enterprise value. The choice of strategy can vary depending on potential synergies, business types, and the financial feasibility of the deal. Therefore, acquisition planning demands careful consideration involving a team of internal and external resources, detailed prospective target research, and a clearly articulated value proposition.
In "Business Valuation Mythology 101 – Part II", Eric Bosveld discusses three common myths sellers often believe when valuing their business: owner-benefit add-backs, growth projections, and potential post-acquisition synergies. The author advises all businesses pursuing sales to maintain clean financial records, provide realistic growth projections, and remember that potential synergies might not be reflected in the buyer's offer.
When undertaking a merger or acquisition (M&A), proper team assembly is essential to ensure a successful transaction. Key team members include a competent M&A lawyer, tax accountant, and experienced management. In some cases, hiring an M&A Advisor/Investment Bank or a Transaction Services Firm can significantly enhance the process. Such professionals navigate the complexities of negotiations, oversee the process, and ensure a positive outcome. Additionally, using wealth managers to manage tax-effective use of the proceeds from the sale is recommended.
Eric Bosveld of B&A Corporate Advisors discusses a typical problem in M&A dealings termed as "The Perpetual Valuation Gap". This is when the owner's valuation of the company perpetually exceeds market-based valuation. Even after a business grows to the owner's initial valuation, they elevate their expectations. This can lead to failed selling attempts, deterring potential buyers. The most successful sales processes occur when parties reach a consensus on potential value before initiating the sale, coupled with proper preparation, professional marketing, and structured incentives for alignment between client and advisor.
This article by Eric Bosveld addresses common misconceptions in business valuation myths. It challenges beliefs that asset value equates to business value, arguing that cash flow drive value. Standard EBITDA multiples aren't reliable business valuation methodologies and enterprise value doesn't translate to equity value. Working capital shouldn't be added to business value as these constantly change. The author plans to address more myths in future articles.
This article discusses the importance of Pre-Sale Due Diligence in business transactions. Sellers often underestimate the impact of withholding information, which may jeopardize the sale. Conducting a thorough pre-sale due diligence helps identify and resolve issues beforehand. The process involves a comprehensive review of the business, compiling important information for potential buyers and addressing possible queries or concerns they may encounter. It reiterates that disclosure and rectification of shortcomings before negotiations is preferable, as buyers inevitably uncover hidden issues.
When selling a business, transparency with EBITDA addbacks is crucial as it impacts buyer's valuation perspectives. Unjustified addbacks might harm negotiation outcomes. It’s advisable to present accurate adjustments, ensuring clear justifications, before the buyer's due diligence process.