Business owners usually know, when the time comes for them to consider sale of their company, that it is prudent to get professional help. In every case, that is the right answer. A professional facilitator will get you more in proceeds for the sale, they will bring you a wider array of “choices” in the buyers you deal with, and they will help you to structure a cleaner transaction with little exposure to post-sale disputes.
As owners begin the process of considering sale, they often don’t know where to search for help. Your attorneys and CPAs are always ready to assist – but they are not the primary people you need to sell your company. Selling a company requires multiple people spending half or more of their time for probably six months or more. Neither your attorney, nor your CPA can possibly do that. They have too many other clients. Additionally, they hesitate to work on a contingent fee or a success fee basis.
So – who do you hire to help with sale? Common “titles” for specialists in business sale might be investment bankers, or business brokers, or intermediaries. Investment bankers really may often cover a much wider array of services – like raising capital for a new or growing venture, or facilitating IPOs, or managing private investment accounts for well-heeled investors. Regardless of the identifying terminology, the object of the game is to find a specialist who ONLY sells companies. They will be more skilled, every time.
As you seek out such professionals – what are the most critical things to look for?
First of all, ask what they do. If they help raise loan money or do buy-side work as much as sell – they are not as focused as the exclusive seller rep, and usually they aren’t as good. Also, firms which do both seller and buyer work, or firms which buy companies for their own account, often have conflicts of interest. If a seller intermediary comes to the end to say, “no one will buy this thing, so… just sell it to me!” – you should be suspicious of the intensity with which he tried to get the company sold. Also, when intermediaries work both the buy and the sell-side, they are sometimes paid by both sides to the transaction. If your seller rep is receiving a cash bonus for sale to certain parties, he is going to care far more about getting you sold to the guy who will give him an additional bonus, than he cares about getting you the best deal.
Secondly, ask about the intermediary’s success rate. The best of the best will close almost every transaction. Ask them what transactions they have worked on in perhaps the past 2-3 years, which failed to close. Ask why. If the facility burned down, or if the specific industry took a horrendous nose-dive, it may be excusable. However, if all proceeded steadily during the selling process, it should have succeeded.
Ask for references and CALL THEM. I am often amazed at how many past seller client references we give to prospective clients, who tell us later that they never received one call from our new clients. Past owners of privately held companies were once in your shoes. They usually are pleased to be of help. They’ll tell you how the firm you’re investigating really did, in services to them. They’ll try to give you a “heads-up” about what the process is about, and what might be hard or cumbersome.
Ask the prospective intermediary to walk you through their typical process, including coverage of what timing to expect. Ask about history – how long has the firm been around, and how many deals have they done.
Ask about industry experience – but I would coach you not to get totally absorbed with industry focus. In real life, in terms of successful outcomes, it’s far more important to have energetic, creative, skilled negotiators, than it is to have someone who speaks your industry “language” perfectly. Often professionals who are very established in one industry tend to rely heavily on old friends and colleagues. It’s much easier, if you’re the broker, to independently and competitively deal with multiple alternative suitors, when you have NO pre-established allegiances to deal with. If our firm assigns three senior people to one sale engagement, we actually, as a matter of policy, make sure that at least one of the three is completely new to the industry. Those people are more creative and more successful at finding evolving new players, and new influences within the industry. It works.
Ask the prospective firm who, specifically, will work on your transaction. Ask how much of each person’s time they would expect to budget for your specific transaction. Ask how often, and to what level of detail, they will share status reports with you. In almost every business sale, the likely time required for a senior professional to stay alert and “on top” of the engagement is probably between 1/3 and 2/3 of that individual’s time. If that kind of time commitment is not part of the plan, your chances of success decrease dramatically.
Ask intermediaries if they have ever had sellers involved in litigation with buyers post sale. If they have experienced this, ask what it cost their seller clients in the end. Honest and very careful and meticulous communication can usually avoid post-sale problems. However – smoothing out all of the potential bumps in the road, as the Definitive Purchase Agreement and other key documents are drafted, is extremely time-consuming for the intermediary. (Historically, we probably average one fourth to 1/3 of the total engagement time controlling this.) However, it is important, if you expect to keep the proceeds. (We have not had one single lawsuit between our sellers and their buyers, in over 25 years.) Sellers without litigation avoid cost and avoid huge head-aches.
Consider the fee structure proposed by the intermediaries and try to determine if it will incentivize them to get the optimum results for you. Their financial incentives should mirror yours, as closely as possible. That may mean bonus elements to encourage higher proceeds, greater speed, or even desirable post-sale employment agreements or perhaps sale of related real estate. The more clearly and consistently the financial incentives to the intermediary match yours, the more likely it will be that both sides achieve desired results.
Also, in considering fee structures, do not be too afraid of up-front retainers. Any quality intermediary will require some payments from sellers, either up front, or as the engagement progresses. Such retainers usually don’t even begin to cover actual costs, but they do reassure the intermediary that the seller is truly committed to this attempt to sell. Ideally, the seller should want a vast majority of the intermediary’s fee to come with successful close. But if there is zero required fee up front – the seller probably will get about what he has paid for (zero).
The last, but certainly not the least important, factor lies in assessing how you will likely work with the intermediary. Do you sense that they care about their clients? Do they seem to be driven, and likely to be hard workers? Do you think they seem to share your perspectives about right and wrong? Do they seem to appreciate and value this business that you have worked so hard to build? If these things seem to really be a fit for you, and if the other details were at least “OK” – you may have found your match!
Help from the right intermediaries can produce the ultimate grand-slam, home run of a business lifetime! Never to work another day? Unlikely. But never to HAVE to is a good place to be!