Selling your business is likely to be one of the most important events in your life, so don’t just sign up with the first intermediary you find. As with all professions, there are good and bad intermediaries and M&A firms out there. …
Here are some steps you can take to make sure you are working with someone that will competently guide you through the process of selling your business (Note – this guide is for middle market M&A businesses with sales between $5 million ad $50 million. For smaller firms, see my blog post on how to choose a business broker)
1. Check references from recent transactions. Actually go out and do this; it is the most important thing you can do to check out an advisory firm. Selling your business can be a long, arduous process with some tough challenges and conflicts to work through. Contact a couple of clients and discuss these areas with them:
Integrity – Did the firm act with professional integrity and give honest, objective advice? Were they willing to deliver bad news as well as the good?
Knowledge – Did the firm have a good understanding of accounting and financial principals throughout the transaction? Did they take the time to learn about your business?
Persistence – Not all deals proceed smoothly so it can take persistence to get a deal done. Did the M&A firm stick with the marketing and work diligently throughout the process?
Communication – Did the firm’s employees communicate well orally and in writing? Did they keep the client informed through the process? Review a sales prospectus (the “book”) as part of your selection process.
2. Marketing is critical in the middle and lower middle market. The best price and the best deal structure come from having multiple buyers competing for your business. It is really as simple as that, and it amazes me how many middle market M&A firms don’t understand that reality. It is less important for small ‘mainstreet’ companies that have a tighter range of possible values (plus they are local and also can’t afford an agressive marketing program). For large companies where there is a limited number of possible buyers a wide reaching marketing program isn’t needed. Mid-sized companies, however, directly benefit from marketing because statistics show that about 75% of the time in these middle market deals the seller didn’t know the buyer prior to the deal. Ask about the extent of the marketing. In the middle market, using the web and making a few hundred phone calls isn’t enough.
If you read my blog, you know my posts are educational and rarely do I pitch my company, The Woodbridge Group. However, marketing differentiates us from the pack so pitch I must. Robert Koenig, the CEO of Woodbridge is fond of saying, “We are consumed with finding buyers”. He’s right, we are, and that provides a direct and tangible benefit to our clients. For every client, we have team that develops a huge list of target buyers to contact, drawing on numerous databases, some widely available, and some proprietary, developed over many years. The campaign includes a combination of first class mail, telemarketing, focused direct calling, email, web, and industry advertising, all using a confidential “blind” process.
3. How not to choose a firm. Fundamentally I don’t have a problem with ‘how to sell your business’ seminars and workshops since they can be educational. Be careful though, all of the clients I’ve met that have been ripped off got into the trouble during these seminars. The common scam is to sell you an expensive and overly optimistic valuation or an engagement where the firm didn’t actually market the business. If it feels like a hard sell, it is. If they aren’t leaving you time to make a careful evaluation, than there is probably something they are trying to hide.
As an aside, there is an underlying problem with many seminar programs. Often the firms pay the telemarketers to fill seminar rooms and workshop leaders to land engagements, not sell companies. This naturally leads to signing up companies rather than selling them. You want a partner that is more focused on making sure your business will sell.