Selling Your Business Right The First Time.
The sale of your business represents the culmination of years of sacrifice and hard work. It’s likely to be the most important financial event of your life. Most business owners need expert help to get this right.
The goal is to find the right advisors to prepare your company for sale, market it effectively and negotiate the best deal for you. As in any profession, there are excellent advisors and, unfortunately, there are less-than-excellent advisors. Distinguishing between them is difficult because most business owners only deal with a business intermediary once in their lives. Few owners will have a chance to learn from their mistakes. It’s also difficult to rely on your peers for advice if you’re trying to keep your sale plans confidential. These factors combined with the secrecy that shrouds the investment banking and merger and acquisition advisor (M&A Advisor) industry means many business owners are at risk of making costly mistakes.
What To Look For In A Merger and Acquisition Advisor.
The suggestions below are based on Venture 7’s 120+ combined years of experience launching, building, selling, buying and investing in privately held companies. We’ve hired, fired, collaborated with and negotiated against bankers, advisors and brokers of all kinds. We’ve seen the good, the bad and the downright scary.
Business Operating Experience.
Find an advisor who understands what it means to build a company from nothing, nurture its growth through adversity and sell it successfully. A career banker or broker can facilitate hundreds of transactions and still never really understand what it’s like for a business owner to sell a company that has been their passion and identity for so long. Selling a company is one of the most emotionally challenging decisions an owner ever makes. An M&A advisor who understands this life transition from personal experience can improve your personal and financial outcome.
Teamwork.
Selling a company is a team endeavor. Successfully selling a company requires a wide range of skills including sales, marketing, accounting, finance, project management, negotiating and more. It’s virtually impossible for an individual to master them all. An experienced team is especially important if you hope to sell to a large, strategic buyer who is likely to have their own team of experts on the other side of the negotiating table. And beware the firms who push the real work down to junior associates the minute you sign a contract. If a partner is selling you on the firm's services and you have confidence in them, make sure they are the ones who will actually work on your account.
Experience Selling to Big Companies.
A maximum value strategic sale is likely to be made to a company much larger than yours. Make sure your M&A advisor has experience dealing with large companies. Navigating the organizational structures of large corporations is very different from working with individual investors or owners of small and mid-sized companies. Don’t isolate yourself from the largest and most lucrative potential buyers by working with an advisor who has spent their career dealing with small companies.
Marketing and Sales Skills.
When business owners think about selling their business, they often consider the financial, accounting and legal aspects of the process the most daunting. Most bankers and M&A advisors come from these backgrounds and those skills are important to determining the valuation of your company and for structuring a deal. But remember that you are selling your company. And if you do it right, you're selling more than just the sum total of its assets and cash flows - you’re selling the strategic value associated with your brand, intellectual property, customer relationships, management team and more. So look for an advisor who understands the elements of value beyond just what your financial statements say, and look for people with sophisticated sales and marketing skills to represent your company to potential buyers.
Some M&A Advisory Traditions Need to be Broken
There are many practices that have developed for the convenience and benefit of the investment banks and business brokers at the expense of business owners. When you work with an M&A advisor, you should be on the lookout for certain behaviors:
Over Reliance on Financial Industry Relationships.
The financial industry has long been an “insider's” game with established players sharing deals with other established players. But the internet has significantly leveled the playing field and brought a degree of transparency to the industry. Finding a buyer no longer requires a Wall Street address or membership in the right country club. On the contrary, an over-emphasis on financial industry relationships can undermine your quest for an optimum outcome. There is a great big world of potential buyers out there, and an advisor who sells a high concentration of companies to private equity investors, for example, might be unwilling or unable to put in the extra effort required to secure a premium valuation with a strategic buyer.
Unwillingness to Align Their Financial Interest with Yours.
M&A advisors will argue that a traditional success fee, based on the “Reverse Lehman Scale” aligns their incentives with yours - that is, the higher the sale price, the more money they make. That is true, but there’s another incentive created by traditional success fees - a fast, low effort, low valuation sale is better than no sale at all. As a result, many advisors prefer a fast, “pretty good” transaction to a longer, higher effort deal that might earn them incremental commissions. Look for an advisor who understands and accepts this dynamic and is willing to tailor their fee structure to align their interests with yours.
Success Fee Only Agreements.
Firms that offer success fee only contracts sound awfully appealing to a business owner because they don't have to pay anything until the deal is done. The reality is things don't always go as planned in M&A. Business owners change their minds about selling and deals break down for a wide variety of reasons that have nothing to do with the quality of the company being sold. Every M&A advisor knows this. It's the riskiest part of our business. Some M&A advisors manage this risk by investing as little time up front as they can. They do the minimum necessary to get a company on the market and hope that the "listing" finds a willing buyer. If the deal never closes and they don't get paid, they haven't "wasted" much time with any one client. That's exactly the wrong way to approach a business sale.
The probability of a successful sale is much higher when a company is properly prepared to go to market, but that takes time - time to understand the company, conduct pre-sale due diligence, to develop great marketing materials and time to research, approach and manage a pool of thousands of potential buyers. Merger and acquisition advisors who are committed doing a great job and investing the time it takes to sell your company successfully will ask for partial payment payment in advance of closing.
M&A Advisors For Business Owners, By Business Owners.
You won’t be surprised to learn that Venture 7 Advisors meets all of the above criteria. Indeed, Venture 7 Advisors was created specifically to address many of the shortcomings we observed in the traditional Investment Banking and Business Brokerage industries when we were selling our own companies in the past. We are a different kind of M&A advisory firm that is built from the ground up with business owners in mind. If that appeals to you, please contact us. We would love to learn more about your business and your ownership objectives.
About Venture 7 Advisors:
Venture 7 Advisors is a team of merger and acquisition advisors who assist the owners of small and mid-sized companies to plan and complete the sale of their business. We find the best buyer to meet each business owner’s financial and legacy goals. We represent clients in consumer products, distribution, manufacturing, B2B services, construction, telecommunications, and eCommerce from offices in Burlington, Vermont, the Hudson Valley, New York, and Western Massachusetts.
We're here to talk about your situation, provide information, discuss your options, and put things in perspective. Contact us at any time:
Bryan Ducharme
Managing Partner
Mobile: 802 578 6462
Scott Hardy
Partner, Master Entrepreneur