01 May How to sell a business VERY quickly
While never an ideal scenario for any business owner, sometimes selling a company quickly is an absolute necessity. The mantra, “nothing that is worth having comes without a price” is applicable throughout the M&A process. Consequently, extreme care must be taken when owners and their advisors work to sell a business as fast as possible.
In doing so, one must keep in mind that the cost, quality & speed trade-off applies: the faster you want something done, the more you’ll have to pay and the greater likelihood the quality will be below an acceptable standard. Keeping all these components in mind should make an owner rethink a speedy strategy for selling a company. But, when re-engineering is not on the table and speed is the best solution, there are a few key risk factors that still need to be considered.
- Quick deals make acquirers nervous. The question they’ll often ask is, “why do they want to sell so quickly?” “Is there something they know within the industry and with their customers that we don’t?”
- Fast deals remove the thoroughness of being methodical. The faster you move, the more likely both seller and buyer are to miss a key point within due diligence or as part of the negotiations. Speed doesn’t lend itself to quality (remember the cost, quality, speed trade-off).
Sometimes speed is forced by factors outside shareholder control and could be motivated by internal conflicts among partners or shareholders, family health issues, or an initial bid by another potential acquirer. When speed is necessary, the advisor focused on the deal will need the following characteristics as an absolute must:
- Knowledge of acquisitive companies in the sector. When speed is of the essence, the M&A consulting firm will greatly benefit by already having contacts within the acquisitive firms in the industry. Knowing which companies in a particular sector are looking to acquire is not enough, the consulting advisor must know the precise contact within the particular firms of interest. This significantly reduces the time spent performing outreach activities within a particular market.
- Previous pitchbook production within the sector. The speed of creating “the book” will be greatly reduced by already having industry research, knowledge of the industry growth statistics and a general understanding of how the macro forces work within the market of interest.
- Greater than average resources on-hand. Speed requires more resources at one’s exposure. When the deal-maker has access to the assistance of more associates, other directors and/or a small team of folks that can assist in quickly taking the firm to market and following through with rapid due diligence and quick closing, then the seller greatly benefits.
In short, the factor with the greatest correlation to successful deal speed is the advisor with existing industry contacts and industry expertise doing deals in your niche of interest.
A note about distressed and special situations
Occasionally we’ll come across a client or a potential client who’s business is under duress. This scenario can be extremely stressful for owners who see a business with high fixed costs whose cash-flows may not be covering the outflows. In a bleeding business, a quick fire-sale may be the only available option to avoid financial ruin or bankruptcy. Such special situations may require the quick sale of non-producing or expense-driving assets while maintaining the core cash-producing money center for the company.
Sometimes the company may have been plagued by external macro factors like changes in regulation or general industry consolidation. In some cases, distress is suffered as a result of internal management incompetence. Whatever the case, the company management should recognize the situation before it’s too late. You can either merge or die a slow death and end up selling the assets-only at a massive discount from fair market value (FMV). This only underscores the need to have M&A expertise retained long before shareholders are intent on selling so as to be prepared in the event that factors out of the owners control significantly change the current and future outlook of the company’s fortunes.
Selling quickly is, in and of itself, a special situation that requires the assistance of experts and the networks to make it happen.