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Good Companies Don’t Get Sold, They Get Bought

Whatever your reason, we published a blog on this recently, at some point in time you will look to exit your company. One thing to keep in mind is that selling a company is the same as selling an asset. In reality, it is no different than selling your house. You will need to hire an agent (sell-side advisor), compile a pitch and create a sales pack to help demand the maximum price for your house (company).

Where a sell-side advisor can help

Before you start this process, consider the message your decision to sell will send to employees, customers, and potential suitors. Getting out on top is normally unlikely. Selling can therefore often send the wrong message. Sell-side advisors generally have a list of people who are looking to purchase companies, and why an “off market” deal is often ideal.

There is a common saying in the industry, that “good companies don’t get sold, they get bought”. Unless you are the hottest start-up in town, you tend to receive less than top dollar for your business on an auction block. It’s nearly impossible to negotiate the best deal once everyone knows you want out. The best deals happen when someone comes looking after an introduction. Below we list a few things you can do to make this more likely.

Build a brand around your company

Building a brand creates a long-term value. The faster this brand grows is generally correlated with how much interest you will receive. The process for this is the same as what you do for attracting customers, PR, and suppliers. If your intention is to get an early exit, focus on implementing a scalable and profitable business model that produces real cash and improves your balance sheet each month.

Keep up with your housekeeping

Only about one-third of the signed letters of intent (LOI) ever result in an actual business transaction. What some business owners don’t realize, is how intense due diligence can be. If you have skeletons in the closet, they will be found. This doesn’t need to be anything dodgy or illegal, simply bits of information you didn’t want the world to see. Previous lawsuits (whether you won or lost), tax claims or even lost RFPs could all classify as examples of credibility breakers. Honesty and communication are the main ingredients of successful deals.

Ensure you have a 2IC

If you are a business owner or senior executive, you tend to spend your time working in the business, not on the business. If this is 100% of your day job, you might get into issues when you finally try to sell. When you receive an LOI, the focus will shift from running the business to the exhausting due diligence process. It can be a huge distraction, which is generally compounded if you’re focused on customer service and not the deal. Have a contingency plan for juniors to be able to take your place. This is good practice in regards to key person risk as well and should increase your sale price due to the lower risk.

Always aim to grow

This is easier said than done. However, some owners get comfortable. If you have steady earnings, solid profits and a regular dividend you might think your company is a buyer’s dream. What you have actually done, however, is reduce your valuation multiple, and decreased the value of your company. If you can show steady growth, even in the low single digits, your company’s valuation can be exponentially higher. If you have remained flat recently, look for some new business ideas. Hire some fresh blood and let them give it a go if you are too comfortable.

Think like a buyer

It is easy to hold your own company in high regard. But if you want to attract the best deal, without looking, think about this as a buyer. It is not often you get a knight riding in with a great valuation and a big bag of cash. A deal is a process and can take years. As stated, a good sell-side advisor will know which buyers are currently looking. The deals we see almost always have some sort of existing personal relationship. If a buyer is looking around, try to get in the same circles as them. Once you have several buyers in your sights, work out what attracts them to a company. If this is not aligned with your company, see if you can make some changes. Don’t change the way you operate but see if you can mold your business into something they desire. For example, if you find out a potential acquirer likes to see written contracts with customers, ensure you start to get these from your customers, especially before they hear you are selling.

Focus on things you can control and think about what you would like to see. Be organized and keep good records. The exit strategy will naturally take care of itself, especially if you have help from people who know what they are doing.

Bottom line

If you want to sell right now, you might have left the planning until it is too late. Think a few years ahead, and decide what would make you happy, and give you the most time on the golf course. Contact a sell-side advisor, and ask them if there is someone looking around and ask for an intro. You don’t need to turn up with an offer, and as we suggested you don’t want to come across desperate. Just ask to talk and share ideas, plant the seed. Ensure you drive for growth, even if it is small single digits, and make sure your prospects hear about this growth. Form a bit of competitive tension, and then when the time is right start the conversation. Don’t be forced to sell, make it seem like this was not your plan.

Corbin Bridge on Linkedin
Corbin Bridge
Corbin Bridge is a licensed investment banker at InvestmentBank.com. He has prior experience assisting private companies in developing and executing acquisition strategies. Corbin works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. His areas of interest include Blockchain, AdTech, and Entertainment. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Corbin resides in Las Vegas, Nevada.
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