Our contract for sale of a company generally lasts for a one year period. However, our “average” time, from hire date to close is more like 6-8 months. We have had transactions completed as fast as 4 months, where an early buyer was very aggressive up front with a large price and a firm commitment. On the other hand, we have had a couple of transactions that took more than a full year (in those cases due in part to a failed transaction along the way, where we ended up needing to find a new buyer altogether).
To give readers a general sense of what is going on during this time, a short recap of the “normal” selling steps undertaken follows:
- During the first 1-2 months there are two primary efforts underway for our sellers-
- We begin to develop information about the company, which we will later present to buyers. This information includes extensive financial background, information on people, data on equipment and facilities, and information on markets and growth.
- Simultaneously in that early process, we do extensive research on the buyer markets likely to target the segment. We talk to hundreds of buyers who target our client’s segment, and ask them for details of their most preferred targets.
- By the beginning of month 3, we have a fairly strong handle on the most suitable buyers to approach. We begin to obtain signed NDAs, and move to share info with buyers. That process typically involves about 2-3 months of further exchange of information, before we start to get firm bids from outside.
- Usually by month 4 or 5, we are prepared to ask for “letter of interest” to stipulate buyer value expectations. We usually have a buyer chosen to move forward with before month 6.
- Commonly it takes probably another 60 days to get to close from this point in time.
Hence the overall estimate of about 6-8 months to get completely through the process to close.
In some cases, we perform for prospective clients a “salability analysis” a few years ahead of the selling process. We do charge for such endeavors – generally at the rate of $10,000 for the project. (We actually budget more like $20-25k in staff time to do these projects, but the shortfall which we invest is a good investment for us, because it tends to help the prospective seller be much more “ready” for sale in a few years.)
When we do those projects, we assess the company’s strengths and weaknesses for possible sale, and we report back to our seller client. We also do substantial preliminary work on assessing the specific market conditions for that client’s sub-segment of business, to get a strong feel for most likely ranges of potential value. That too is shared with our seller client. Lastly, we make recommendations regarding what enhancements might be viable and practical for our “would-be seller” to dig into, ahead of the selling process.
Some sellers operate business in such a way as to not need a great deal of “up front” work to become prepared for sale. Or, sometimes sellers have other reasons to embark on sale quickly, without delaying for additional “prep” work. For example, the seller’s market area might be selling for exceptionally strong prices, and the seller wishes to capitalize on the surge. Or, a seller may have health issues that cause him or her to be firmly decided to move forward with sale soon.
If you are in the process of contemplating have sale, and wish to get a quick analysis of your particular market, we are always happy to share our database of intelligence for your consideration.