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The Undeniable Truth about Maximizing Your Sale Price

If you happen to be a business owner and also just so happen to be thinking about exiting your business in the next three years (or perhaps less) then the question “how can I maximize my selling price?” may have come up at some point in time. If so, keep reading as you have just found a rarity – a useful answer to your question!

One of the foremost things to keep in mind when hoping to maximize your timing and selling price is that there isn’t just one, but several avenues you can pursue to get multiple prospective acquirers involved in the process, which will substantially increases the odds of a fair value transaction.

Strategic Sale
A negotiated sale involves sourcing, qualifying, and selecting multiple “synergistic” acquirers – think industry or sector participants who would stand to realize substantial benefits from a combined business.

As you may have guessed a negotiated process has both its positives and at least some negatives. First the drawbacks, as with any other process but in particular this one, maximizing the sale price may prove difficult if the business in question does not possess a viable competitive advantage that is not easily replicable by a potential suitor who is also in the industry. Second, a negotiated transaction will undoubtedly involve financing, tax, and perhaps other considerations. As a direct result, the time it takes to complete a sale may lengthen and exceed the median of 9-12 months that it takes to sell a business.

On a less downcast note, while a drawn out and exhaustive due diligence process can divert management’s attention away from operations. The negotiated process itself is often less disruptive for the target and its employees on the whole, as it affords greater confidentiality and less disclosure to third parties and others such as suppliers and customers alike. All of this is paramount since the business must continue to function as it normally would throughout the sale and transition process if an optimum exit price is to be realized.

Another positive to undertaking a discreet, negotiated sale process is that by avoiding the public eye, the business also retains its future alternatives should a sale be unsuccessful for any reason or if the seller would like to re-evaluate an exit.

Broad Auction
Much like a traditional estate auction, a broad auction employs a competitive bidding process aimed at achieving the highest possible value for the seller of a business. That said, not every business lends itself well to such a sale structure.

Generally speaking, the broader the industry the business participates in (i.e. manufacturing, distribution, etc.) the larger the universe of potential buyers (obviously), but doubly so in this instance as a niche or highly specialized business where one requires specific training or education to efficiently operate will nullify the intended auction effect. On the other hand, a typical business should attract in excess of half a dozen bidders which could also include but not be limited to financial sponsors (private equity groups) and other strategic buyers who may be seeking to expand their footprint in an existing market. Finally, a growing merger and acquisition market – as has been the case for the past several years now, lends itself best to such a bidding process.

Targeted Auction
Similar to a broad auction with the primary difference being that at least some prospective acquirers will have already been pre-identified and invited to participate in the bidding process which of course can have the unintended drawback of there being less auction participants as some may elect not to take part in an open bidding process for fear of overpaying. That said, this is balanced by the fact that an auction process usually takes 6-9 months to complete and reach a signed definitive purchase agreement – a slightly shorter timespan (on average) than it takes for a strategic sale to culminate. The stages to any auction process (broad or targeted) are the same and some of these steps also prevail in a negotiated sale:

Stage One
The sell-side advisor disseminates a confidentiality agreement for signature and business preview (teaser) to prospective bidders. Upon execution of the confidentiality agreement, qualified bidders receive a detailed confidential information memorandum (CIM). Based on the information included in the CIM, bidders then elect whether to make a preliminary bid (offer) which will make up the first round bids.

Stage Two
Due diligence is performed by qualified bidders – data room access, initial on-site meeting with management. Finalists are selected by the advisor and the seller to enter into negotiations. Negotiations end when all waivers are cleared and a definitive purchase agreement is executed.

As you likely are able to tell by this point, any of the above described processes would be a far superior alternative if you would like to maximize the ultimate price realized for your business than simply anonymously listing it for sale on any myriad of business for sale websites, sifting through casual tire kickers, unqualified parties, and receiving lowball conditional offers all the while most of your daily attention has now shifted to the sale rather than being on the business itself.

W. Teddy