If it is time to think about selling your business but you are not sure where to start, you are not alone. Navigating the process as a first-time seller can be overwhelming, and the due diligence involved is more intensive than many expect. By partnering with an experienced sell-side advisor familiar with your industry, however, you can achieve the desired outcome without wasting time and resources.
Studies have shown that the vast majority of middle market business owners achieve final sale prices equal to or greater than initial estimates provided by their advisor. And the benefits of a sell-side advisor go beyond just the quantifiable.
5 Reasons to Work with A Sell-side Advisor
1. Planning for a sale
There is much to gain from a sell-side advisor beyond simply being united with a buyer. From the outset, experienced advisors are able to establish expectations while constructing a robust plan for getting the most out of a sale.
Sell-side advisors understand what buyers are looking for in their acquisition targets, such as strong management teams, as well as traits that give pause to buyers. They will analyze the selling business to complete an initial valuation and convey the likely market value of the seller. In addition, sell-side advisors are able to introduce their clients to M&A attorneys, wealth managers, accountants and other professionals who will help plan for a successful exit.
All of this serves to minimize the risk involved from a planning standpoint.
2. Market knowledge
Due to the limited supply of data and a disconnect of information available to buyers and sellers, here is inefficiency in the middle market, making advisors essential to the M&A process.
Sellers do have the advantage of knowing about their own company, however, buyers are typically more versed in completing transactions.
Sell-side advisors are able to use their understanding of market dynamics and knowledge of a particular industry to overcome opacity in the middle market M&A environment. They are familiar with the most recent trends, knowing the type of companies that are on the hunt for deals and which ones are not. Their industry connections will pay dividends.
And from a valuation standpoint, advisors are able to weigh recent transaction comparables and public market comparables, as well as complete a leveraged buyout analysis and discounted cash flow analysis to estimate the value of a business.
3. Managing the Process
Selling a mid-sized business can be challenging and time-consuming, often taking up to a year or more. That’s why managing the sale process is widely considered the most valuable service that sell-side advisors provide.
The process generally includes but is not limited to:
- Completing due diligence materials
- Developing market positioning
- Writing offering materials
- Identifying and contacting prospective deal partners
- Soliciting indications of interest (IOI) from prospective buyers
- Conducting management presentations
- Soliciting letters of intent (LOI) from prospective buyers
- Completing final due diligence
- Obtaining relevant approvals from regulators, shareholders
- Executing final sale documents
4. Management Focus
Navigating the sale process can be a significant distraction from day-to-day operations, negatively affecting performance and lowering the value of your company. Guidance from an investment banker allows management to maintain focus and keep the company’s metrics on track right through the sale.
5. Objective Perspective
Selling your business can be an emotional process. An independent, outside advisor helps owners carefully evaluate all options and minimizes the likelihood of biased and irrational decision-making.
Having a sell-side advisor adds credibility and proves to a prospective buyer that you are serious about a sale. An advisor keeps the process moving and ensures management is focused on keeping the business running smoothly.
Sell-side advisors know where the potential pitfalls lie, such as with unqualified buyers who can harm a seller by breaching confidentiality.
Seek out an experienced sell-side advisor and ask about previous sales they have facilitated in the industry. Be sure they are they familiar with the competitive landscape of your industry and have ample contacts and access to decision-makers.
Partnering with a sell-side advisor will allow you to feel confident you are getting the best deal.
Matthew Roberts is Vice President at Copper Run. He specializes in the business services, distribution and manufacturing sectors.
This article was originally written July 22, 2019