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As
a professional business intermediary, we interact daily
with business owners and understand many of their concerns.
Here we address common questions of business owners relating
to the business sale process.
Why
use a business intermediary?
What
should you look for in a business intermediary?
How
do you determine how much a company is worth?
How
should I best present my business for sale?
What
does "recasting financial statements" mean?
How
should financial information be presented to a strategic
acquirer?
How
important is confidentiality and can it be maintained during
the process?
Should
I have my financial statements audited?
Is
my transaction likely to be a stock sale or an asset sale?
Can
I get paid for the "potential" of my Company?
How
long will it take to sell my business?
Should
I alert any of my employees that I am involved in the selling
process?
How
is Westmount M&A compensated for its services?
Why
Use A Business Intermediary?
Selling and buying a business is a major undertaking which
is both time consuming and complicated. They are adept in
handling the delicate interactions associated with such
a sale or purchase, and can qualify a purchaser or a seller
while maintaining the required confidentiality during the
process.
Just
as it takes a business owner years to understand all of
the aspects of his or her business and industry, there is
no substitute for having extensive experience in handling
a broad spectrum of business transactions. Working with
a qualified professional intermediary will enable you to
avoid making the inevitable mistakes that result from lack
of experience with the process.
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What
should you look for in a business intermediary?
It
is important to have a comfort level and work with an intermediary
whom you can trust to achieve your sale objectives. A professional
firm should provide a high level of attention, professionalism,
service and expertise to your assignment regardless of the
size of your deal.
There
are commercial real estate firms that are ill-equipped to
handle the complexities of a business sale, or traditional
business brokers that typically handle the sale of retail
"mom and pop" businesses. On a national level,
some intermediaries market their services through seminars
and charge excessive "up front' fees, profiting whether
or not they achieve the seller's objectives.
A
true professional firm will provide unparalleled merger
and acquisition representation, while maintaining a competitive
success based fee structure that aligns their financial
goals with those of the client business owner.
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How
do you determine how much a company is worth?
Our extensive experience in handling business transactions
enables us to keep up-to-date and highly informed regarding
business valuation. Our firm has access to comparative data
relative to recent transactions in your industry so we understand
how acquirers perceive value. Based upon our experience,
we are in a position to provide you with a valuation range
that you are likely to achieve so you can make an informed
decision as to whether to pursue a sale of the business
now or delay to a future period.
Valuing
a company is an art, not an exact science. You cannot apply
simple formulas or pricing comparisons, as is the case in
real estate. Valuation is expressed in a range rather than
a specific number. Learn more about Factors
Influencing Business Value.
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How should I best present my business
for sale?
To optimize the sale process, it is critical to create a
professional presentation of the business which is a comprehensive,
objective and articulate prospectus of the company that
positions the business in the best (and most accurate) light.
The operational perspective must focus on two main components:
minimizing risk factors and expansion opportunities/future
potential.
Risk
factors are defined as anything that may cause doubt as
to the predictability of future earnings under new ownership.
These may include dependencies on employees, customers,
owner relationships or vendors; market uncertainty; competitive
developments; regulatory actions, etc. Minimizing risk factors
that could negatively affect the Company is key to increasing
a buyer's comfort level with the future earning power and
viability of the business.
Expansion
opportunities and future potential are growth prospects
that have not been pursued under current ownership for a
variety of reasons. These limiting factors may include such
things as lack of capital, limited desire (due to age or
other reasons), limited management capability and sales
& marketing issues. Growth opportunities could also involve
developing new markets, technology, products and/or expansion
into new areas.
In
presenting these strategies, it is appropriate to assume
that the acquirer will have the financial strength to capitalize
on these opportunities.
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What
does "recasting financial statements" mean?
Proper interpretation and presentation of financial information
is a crucial step in the selling process. Financial statements
are typically prepared for tax purposes, not for business
sale purposes, and do not accurately reflect the true profitability
of a business. Westmount M&A works closely with you to "recast"
your Company's financial statements so that potential buyers
accurately interpret the true economic value of your business.
Failure to properly present a true cash flow potential can
significantly reduce the price that a qualified buyer may
offer for your Company. Learn more about Recasting
Financial Statements.
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How
should financial information be presented to a strategic
acquirer?
A strategic acquirer is a company that is looking to grow
by way of acquisition. Typically a strategic buyer looks
to capitalize on the available synergies with the acquired
company, such as eliminating duplicated overhead expenses,
taking advantage of purchasing discounts and efficiencies
of scale, gaining access to new markets, etc. Given the
"strategic" nature of their interest, it is strongly
recommended that financial information be presented with
these potential synergies in mind.
For
example, it may be anticipated that the two companies will
eventually consolidate operations into one facility. It
follows that the acquired company's facility expenses (i.e.
rent, real estate taxes, utilities, property maintenance
expenses, etc.) will be non-recurring to an acquirer. It
is also likely that a host of other expenses would be redundant
in a combined entity. These types of expenses should be
"recast" and presented to a buyer as redundant
expenses that will not exist after closing.
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How
important is confidentiality and can it be maintained during
the process?
It is imperative to maintain confidentiality throughout
the sale process and to take measures that will guard against
competitors, employees, vendors and customers learning of
an impending sale. Experienced buyers often attempt to exploit
the absence of a qualified advisor by requesting more information
than they should be entitled to see without proper qualification.
Our involvement is critical to maintaining confidentiality.
These
measures include well written Confidentiality and Non-Disclosure
Agreements; generalized, non-descript marketing and educational
documents and thorough buyer identification and qualification
procedures, among additional steps. The use of a third party
business intermediary greatly enhances the probability of
maintaining confidentiality throughout the process by providing
a communication layer outside of the company and managing
buyer access to information. It is virtually impossible
for a business owner to maintain confidentiality when selling
independently given the natural inclination to share information
and speak freely about the business.
Information
should be given in stages, as necessary and more sensitive
matters do not need to be shared with potential buyers until
well advanced in the process.
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Should
I have my financial statements audited?
Acquirers will always have more confidence in the accuracy
and credibility of audited financial statements compared
to compiled or reviewed statements.
Certified
or audited statements reduce the perceived risk that a buyer
associates with the accuracy of financial reporting since
the CPA firm preparing the audited statement is certifying
as to its accuracy, that financial records have been maintained
in form and substance adequate for preparing audited statements
in accordance with GAAP (Generally Accepted Accounting Principals)
and it has conducted a certain level of due diligence. Reducing
perceived risk to the buyer can translate to a higher value
that a buyer is willing to pay for a business. Smaller firms
rarely have certified statements and, as a rule, buyers
of smaller businesses do not expect audited statements to
be available.
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Is
my transaction likely to be a stock sale or an asset sale?
In most cases, a buyer will be interested in acquiring 100%
of the assets of the Company. Acquirers are primarily concerned
about inheriting any potential or contingent liabilities
flowing from the past operation of the Company. An asset
transaction also enables the buyer to restate the value
of the assets to fair market value (as opposed to its current
depreciated book value on the balance sheet) and to re-depreciate
these assets. The differing accounting treatment of buying
assets versus stock has tangible financial and tax benefits
to the acquiring company.
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Can
I get paid for the "potential" of my Company?
Business value cannot be expressed as an exact number due
to the many intangibles inherent in businesses. A realistic
value is forecasted in terms of a low-end to high-end range
utilizing a variety of widely accepted valuation methodologies.
Aside
from simple methods that look at hard assets and book value,
most middle market companies are valued, in large part,
based on a multiple of cash flow. Buyers (and their advisors)
will typically average historical cash flow and attempt
to forecast it into the future. In this regard, business
valuation is influenced by future potential or recurrence
of cash flow.
When
presented with significant growth opportunities that are
well defined and attainable, a buyer will often pay at or
above the high-end of the current valuation range. However,
acquirers are hesitant to overpay for a business by basing
a disproportionate percentage of the total deal price on
potential that has yet to be realized. A buyer commonly
states: "I am willing to pay for the Company based
upon where it is today, not based upon where I could grow
it to".
What
is important from a Seller's perspective is that perceived
expansion would provide justification for the buyer to consider
paying at the upper end of the range of realistic values,
but usually not beyond that range unless the Seller is willing
to play an ongoing role in implementing the growth plan
and tie a portion of the purchase price to future performance
(which is commonly referred to as an earn-out).
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How
long will it take to sell my business?
The
time required to market and sell a business varies greatly
with each sale. In general, it takes from 3 to 18 months
to complete a business sale, with the most common range
from 6 to 12 months.
A
variety of factors, including: market conditions; desired
transaction structure; availability of financing; sales
trends; available competing opportunities; business size
and cooperation of professionals (to name a few) greatly
influence how long it takes to sell a business.
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Should
I alert any of my employees that I am involved in the selling
process?
It is critical to protect confidentiality when selling a
business. Until such time as the transaction is at or near
completion, only the parties that need to know should be
aware of your intent to pursue a sale.
Sharing
this information with employees is likely to generate future
job security concerns since uncertainty is what creates
the greatest concern with employees. The reality is that
human resources, infrastructure and continuity are key factors
of the purchase and the majority of business acquirers retain
all of the employees after closing. Once employees are introduced
to the new acquirer and learn of their operational intentions
(i.e. to grow the business, add employees, modernize the
facility, etc.) most of the initial concerns disappear.
Certain key employees may need to be brought 'into the loop'
at an earlier stage if they play a valuable role and their
input will be critical in the business sale process.
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How
is Westmount M&A compensated for its services?
On a national level, some intermediaries market their services
through seminars and charge excessive "up front" fees, profiting
whether or not they achieve the seller's objectives.
Westmount
M&A provides unparalleled merger and acquisition representation,
while maintaining a competitive success-based fee structure
that aligns our financial goals with those of our clients.
Consequently, we can only accept engagements when we believe
there is a high likelihood of realizing your goals and expectations.
Initially
we provide feedback regarding the likely valuation range
you could expect to receive if you were to sell your Company.
This will enable us to mutually confirm whether our opinion
of likely valuation range is in line with your expectations.
You can then be better positioned to determine whether an
exit strategy makes sense to pursue now or delay to a future
period. The fee structure will vary depending upon the size
of a transaction.
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