FAQ

The sale process typically takes between six and 12 months, depending on the level of work needed to be fully prepared before beginning dialogue with potential buyers.  The duration of the process can vary dramatically from one deal to the next, and depends primarily on (1) your level of preparedness, (2) the thoroughness of your sale process and (3) the quality of your advisors.  You only get one chance to make a first impression, so you need to be ready when you engage with the first serious buyer.  Your investment banker will serve as your quarterback and should ensure everything that needs to happen to get you the best outcome does happen.  Sellers should know that a well-executed, thorough sale process will be grueling.  At Northborne, we have our clients’ backs every step of the way, guiding them through the selection of the right advisors to fill out the deal team, ensuring the positioning of their business is optimal, carefully identifying all the best buyers and managing the due diligence and documentation processes to a successful closing. 

It depends on the company.  Our best advice is to start by finding the right investment banker.  They can help you determine your state of readiness and assemble the best deal team (lawyers, accountants, wealth managers, estate planners, consultants, etc.).  They can work with you to identify the steps required to get you and your company ready for a sale process.  At Northborne, we often consult with prospective sellers months or years before undertaking a sale process.  Often times there are things sellers can do to make their businesses more attractive (i.e., more valuable) to buyers, and if we are able to meet with sellers far enough in advance of a sale process, we are able to identify them AND the sellers are able to execute on the opportunities.  Don’t be shy about starting a conversation with investment bankers, even if you are not planning to sell in the near future.  A high-quality firm should be willing to invest considerable time and effort to help you understand the sale process and identify ways to enhance the value of your company.

This is a personal issue, a business issue and an economic issue all rolled into one.  It has to be the right time for the owners on a personal level.  It should be the right time in the lifecycle of the business to attract the most interest from buyers.  Moreover, to maximize value, it helps to approach the market when the economy (as it affects the business in question) is strong.  Put another way, you would like to sell when all the planets are aligned.  We all know this is a rare occurrence, and since each owner and each company are different, we suggest you consult a qualified investment banker to help you think about your ideal timing.

To put it simply, the right banker will help you get a better result, and you will sleep better at night knowing that you did everything possible to achieve the best result.  A good M&A advisor will bring the right combination of deal experience, industry expertise, buyer knowledge and grit to your process.  It is difficult for sellers not to be emotional about selling their baby, but the right M&A advisor will bring the necessary objectivity and calm to the table.  The specific benefits of hiring an M&A advisor are too numerous to list, so please reach out to us for a longer discussion of the benefits.

There are a variety of standard valuation techniques you can learn from textbooks, and we use them every day.  But there is no replacement for good old-fashioned experience, especially experience with businesses in the same industry as you.  Ultimately, most businesses are valued on the basis of EBITDA (Earning Before Interest, Taxes, Depreciation and Amortization—essentially your operating cash flow), by applying a multiple to your EBITDA to estimate the Enterprise Value of the business.  The multiple varies by industry and takes into consideration things like a business’ growth rate, margins, competitive position, sustainability, etc.  The key is (a) making sure you are using the right EBITDA metric (trailing twelve months, forward fiscal year, three-year average, etc.—it depends on the industry, the company and the market conditions) adjusted for extraordinary impacts on the business and costs that will not continue post-closing and (b) positioning the business so as to achieve the highest multiple.

The overall outlook for your industry is a critical factor.  Is your industry growing?  Is it likely to remain in favor for years to come?  What is the nature of the challenges it faces?  Beyond such industry-wide considerations, multiples for any given company in your industry will be affected by growth rate, margins, predictability/sustainability of revenue, market share, competitive moat, brand, intellectual property, management, etc.  A seasoned investment banker with expertise in your industry can lay out all the elements that impact the value of your specific business.

There are typically a number of things one can do to increase the value of a business in the eyes of buyers.  Cleaning up your balance sheet and diversifying your supplier and customer bases are obvious starting points, but nearly every business has additional opportunities to improve. You should consult with an investment banker experienced in your industry. They should be willing to spend the time to get to know you and your company and offer their insights as to specific ways you can increase the value of your business on a “no obligations” basis.  In addition, you can increase the value of your business just by being transaction-ready when you go to market.  In a well-run process, buyers will be competing to acquire your business and being ready will give them the confidence to bid aggressively.

The best way to do this is to find the right buyer – a buyer that has an established track record of doing the right things for acquired employees.  A good investment banker can help you identify such buyers and position the company optimally to attract their interest.  There are also contractual terms that can be built into a purchase and sale agreement to protect your employees, but buyers are typically reluctant to accept such provisions.  A robust sale process, where the winning bidder knows they narrowly came out on top, will make them more amenable to accepting such terms.  And there are things you can do prior to a sale that can help protect specific employees after a transaction – like putting in place employment agreements with severance clauses requiring the buyer to provide them a severance package if they are terminated without cause.

The key marketing document typically used to market your business in a well-executed sale process is called a Confidential Information Presentation (CIP) or Confidential Information Memorandum (CIM).  These days, this is typically a 25 to 50-page PowerPoint document describing all facets of your company.  A well-written CIP/CIM will highlight the key value-drivers of your business and the attractive aspects of the industry in which you operate.  In addition, we use a “teaser” to interest buyers in signing an NDA to gain access to the CIP/CIM.  The teaser is a 1 to 3-page document prepared on a “no names” basis, and while it generally describes the company and industry, it does not include information that would allow buyers to discern the identity of our client.  The other key marketing document is called the Management Presentation (MP).  This is a document presented by the management team to a short list of potential buyers in face-to-face meetings in the later stages of the sale process, once the list of suitors has been narrowed down to those that are most interested and willing to pay an attractive price for your business.  The MP contains more detail than the CIP/CIM and is designed to be presented as opposed to being read.  We work closely with our management teams to get them ready to make these presentations to, and interact effectively with, potential buyers.

Buyers are typically required to sign Non-Disclosure Agreements to learn the identity of our client and gain access to the marketing materials (typically the CIP/CIM).  We help our clients establish and populate all of their critical data into a virtual data room, a password-protected online repository.  Buyer access to the virtual data room is strictly monitored and controlled.

By all means, talk to a qualified investment banker.  Buyers (strategic buyers and private equity firms alike) are prowling for opportunities to get into a one-off conversation with a possible seller.  They do not want to compete with other interested buyers, and there is little you can do if they reduce their offer at the last minute—once you have become irretrievably attached to the idea of selling.  Protect yourself and your employees.  Even if the buyer is one you like, you should see who else is out there and ensure that you are taking the right steps to maximize value and drive the terms important to you.  If you don’t at least consult a qualified M&A advisor, you may lie awake at night wondering whether you got a fair deal.

This is a highly personal choice, as it depends on your goals for yourself, your family, your employees, your community, your legacy.  These different kinds of buyers offer different kinds of opportunities and have different types of requirements.  You should educate yourself on the differences and understand how they apply to your situation. Depending on the size and nature of your business and the industry in which you operate, some buyer types may not be attracted to your business.

This depends on your personal situation and the nature of the buyer you choose.  The management team will need to be very involved in the sale process, from start to finish.  If you are actively involved in running your business, that means you.  If you have a management team running the company for you, your role may be as much or as little as you like.   If you are actively involved in running your business at the time of sale, you should plan on remaining involved for some period of time post-closing.  If you sell to a strategic buyer, that may mean a six to twelve-month transition period to make sure the integration with the buyer goes smoothly.  If you sell to a private equity buyer, you might choose to be involved running the business for years and years after closing, especially if you opt to reinvest a significant amount of your proceeds alongside the new private equity owner of the business.

Everything. To close a transaction, the buyer and their advisors will ultimately want to comb through your general ledger and review your trial balances.  They will scrutinize your working capital accounts and historical capital expenditures.  They will want a budget for the current fiscal year and ask for a detailed multi-year forecast for the business.  There are a couple items that should be noted.  First, we highly recommend our clients undertake a sell-side Quality of Earnings (QOE) review covering the last three years.  This is not an audit.  It is a tool used to determine and demonstrate the sustainability of your EBITDA going forward under new ownership and is greatly valued by buyers.  Second, while our clients rarely have a long-term financial forecast for their business, it can be an effective tool to drive confidence in the business on the part of buyers.  We commonly take the laboring oar to help our clients develop a detailed, dynamic (interactive) financial model to forecast their business over the medium and longer term.

While the reasons deals fall apart are virtually endless, it usually comes down to some unexpected event that negatively impacts the business.  Perhaps it’s the loss of an important customer, inexplicably missing a monthly or quarterly forecast, or unexpected litigation filed or threatened against the company.  The best defense against such surprises is communicating early and often with your M&A advisor on developing situations.  Hopefully, they will not come to pass, but if they do, your M&A advisor will be better prepared to react, soothe the buyer and calmly identify a path forward notwithstanding the negative event.