WHEN IS THE OPTIMUM TIME TO SELL MY BUSINESS?
From a business, financial or economic standpoint, sell when revenue and profit is up. Preferably, when you have three or four consecutive years of growth. Typically, that’ll be when the broader economy is well into an expansionary economic cycle. If you’ve recently enjoyed some positive press or recognition, all the better. Businesses have a cycle. Don’t wait until times are tough.
From a personal standpoint, sell when you’re not having fun anymore. Life is too short. We own businesses for the benefits we can enjoy from them. When the business becomes the beast and you exist simply to serve it, the proverbial cart is in front of the horse.
WHO WILL YOU FIND TO BUY MY COMPANY?
The short answer is: whomever you wish. If you want the highest price, we will find that buyer. If you want a buyer that will let you keep some equity and continue to run the business, and also pay a good price, we will find that. It starts with your goals and priorities. We serve you and yours.
Typically, sellers will have some buyers they want to exclude. Fine. You’re the boss.
In contrast to what most people believe, buyers are plentiful, and we maintain a database of buyers of all types. The issue is not finding a buyer, it’s finding the right buyer. Not just the right buyer, but a handful of right buyers, so we will bring negotiating strength to the table.
In short, there are three types of business buyers – individual, industry and private equity. Going after the right type of buyer can make all the difference in price, terms, and what is done with your business and employees after the sale. Further, the search technique is different for each.
HOW WILL YOU MAINTAIN CONFIDENTIALITY?
The only way to absolutely ensure confidentiality is to not talk to anyone about selling. But if you wish to sell, the question is: what can we do to minimize the odds of a "leak?"
First, we work hard on it together and make a plan. The plan usually contains the following:
When we start working on a project together, there is nothing to tell at this time. If something definitive comes of it, and we move forward together, then we will determine who to share the news with.
Neither the business owner nor the advisor tells ANYONE that does not absolutely need to know.
Identities and confidential information is shared only with persons who have signed a confidentiality agreement.
Only disclose the opportunity to buyers that are well qualified, capable and interested.
Move swiftly and close the deal in a timely manner. This requires talking to all the best approved buyers simultaneously.
Confidentiality while important and is a key element of the plan, it is not the entire plan. Buyers must be contacted if we are to accomplish our goal of selling the business for the best terms possible.
WHAT DO YOU CHARGE TO HELP US SELL?
If you have a buyer identified and simply want our assistance, we charge an hourly rate, or we can exchange a lower hourly rate for a small bonus upon successful completion. If you want us to assist you from “I think I’d like to sell” through to closing – including development of the offering documents, buyer sourcing, and negotiation/deal structure assistance – we work substantially on a contingency fee (percentage of the transaction) basis but ask for a few progress payments as key milestones are reached (primarily to ensure the buyer is committed). The percentage varies by the size of the transaction. In the event you have buyer(s) candidates but also want our full assistance, including our buyers, we can give a discount or credit if your buyer wins the deal.
CAN YOU HELP ME FIND A BUSINESS TO BUY?
Of course, and we operate within the mindset that you don’t want just any business, but a good/fair deal. You want to find one you like and can “buy right,” so the first thing we will need to do is find you businesses to look at. Most will be overpriced, so we need to find a lot to look at and make a lot of offers. It’s time-consuming but necessary.
When we start to work together, our first step is to establish the parameters for our search. These include geographic area, business type, industry, employee count, profitability or turn-around, and management situation.
Next, we devise an outreach plan that identifies potential candidates. In short, we can help you execute a plan from desire to deal closing. We can help you locate and screen candidates, evaluate and value, conduct due diligence, secure financing, and close the transaction. Call us if we can help.
I HAVE A BUSINESS I THINK I WANT TO BUY. CAN YOU HELP?
Of course. I know it’s a bit daunting if you have never done it before, but we simplify it for you. In fact, buyers waste a lot of time and money running inappropriate or inefficient processes, so we end up paying for ourselves through the cost-saving we bring to your deal.
We love deals. We have worked on hundreds. We are ready to support you and help you get your deal done.
HOW SHOULD I PUT A VALUE ON A BUSINESS I WANT TO ACQUIRE?
Conservatively. As fellow Tulsan and KKR partner Henry Kravis says, “Any fool can buy a business. Celebrate when you sell it (for a profit).” Warren Buffet espouses, “Margin of safety!”
We can help you set your businesses value and explain to you how and why. We can even help you explain the “why” to the seller. David Perkins has a bestselling book on the subject, “A Concise Overview of Business Valuation.” It cuts straight to the point on what you need to know to value a business.
WHAT IS EBITDA AND WHY IS IT SO IMPORTANT?
EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization. So, it’s the net profit of the business, typically the current annual, plus the add backs. It’s important because it represents the profit of your business. Profit, or more importantly cash flow, is what buyers want. It’s also the main driver of value and what buyers are willing and able to pay. With depreciation and amortization added back, it’s a surrogate for cash flow.
Interest is added back to show the earnings on a debt-free basis (and then buyers will apply their own post-closing debt finance assumptions). Similarly, taxes (income) are added back to show earnings before tax rates and structures are applied, and each buyer will apply their own.
EBITDA is a type of profit that provides buyers with a starting point for their analysis. And although multiples of EBITDA can be calculated for any business purchase/sale transaction, buyers don’t really value a business based on EBITDA. Again, it’s a starting point. Buyers take EBITDA and then burden the earnings by the amount of cash they estimate they will have to invest annually to maintain the productive capacity of the business, often referred to as maintenance capital expenditures (“maintenance capex”). Buyers will make other adjustments to EBITDA as well, such as adding and subjecting expenses so their own calculation of profit for the subject business reflects the cost structure once the new owner takes over. These are called normalizing adjustments and the result is normalized EBIT (as opposed to normalized EBITDA, assuming maintenance capex is subtracted from earnings).
WHAT EBITDA MULTIPLE CAN I EXPECT FOR MY COMPANY?
Well, that’s a tough one. Buyers decide what they are willing to pay. The seller, and the process employed by the seller and/or her representative, impacts the price and multiple, but the underlying economics of the business is the primary driver. And things such as what is going on in the market served by the selling company; the timing relative to the broader macroeconomic cycle; the debt finance market; and the characteristics of the company. Growing? Declining? Diversified? Concentrations risk? Earnings stability? Management willing to remain? Degree of importance of seller?
Sellers can dictate a price, but buyers will decide what they are willing and able to pay. I don’t suggest going to market with an asking price as it can only limit the price a buyer might pay. Ask a crazy price, on the other hand, and you lose credibility and waste time. We like to ask buyers to tell us what they are willing to pay.
Multiples are all over the map. We’d have to look at your business in particular to give you a ballpark of what you can expect.
WHAT CAN AFFECT THE EBITDA PRICE MULTIPLE AND SALE PRICE FOR MY BUSINESS?
Lots of things. HOW you go about selling your business, for one. Studies have shown that business owners that represent themselves get lower multiples. Also, larger businesses garner higher multiples.
The #1 driver of value (price) is growth. High growth equals a high multiple. Other things that drive multiples:
proven management willing to remain
seller financing component of the deal structure
low interest rates environment/aggressive debt lending environment
proprietary products and services
high growth industry
defensible barriers to entry
high asset values
Additionally, one little thing nobody seems to talk about is that businesses with high assets and very slim profits (ebit or ebitda) can sell for high multiples. Of course, the price may only be asset value, or contain little goodwill, but the multiple looks GREAT!