When a business owner decides it is time to sell their company, they have probably been contemplating the idea for weeks, months, or even years. Business owners often think they know who the likely buyer or buyers are and are ready to approach them. STOP! A recent study by Anup Agrawal et al. titled, Does Hiring M&A Advisors Matter for Private Sellers?, reported that sellers who use a third party intermediary benefit with an increased sale price between 6% to 25% more over a seller that attempts to sell the company on their own. Here are five reasons to hire an M&A specialist to sell your business:
1. Not only does an intermediary have a database of potential buyers at their disposal, they actively search in every major category of their client’s business to find the likely, and unlikely buyers. A seller tends to focus on the most obvious choices, like competing companies. Intermediaries know the best buyers tend to be adjacent companies- either with similar products but a different customer base, or same customers but offering different products. Private Equity Groups can be great buyers as well, who want to partner with talented management teams to grow companies exponentially. Since the intermediary knows the largest pool of qualified buyers, they are able to generate the most interest in the company. The larger amount of interest in the company leads to a higher sale price and better terms for the seller.
2. It is difficult for a seller without an intermediary to go out to the entire market and keep their company sale confidential. An intermediary entices buyers with minimal information on the seller company and require a signed non-disclosure from buyers before releasing the name of the company for sale or any sensitive information. The seller is then able to avoid customers or employees learning about the seller’s intentions in an uncontrolled spread of information.
3. Using an intermediary immediately changes the mindset of the buyers in the market as they know they will not be able to take control of the deal and will have a clear competitive process they must be part of in order to have the opportunity of acquiring the business. Often the experienced buyer has tactics they use that benefit themselves, and the process the intermediary puts in place keeps the control with the seller.
4. The buyers know that when a skilled intermediary is involved in representing the seller, the information provided is accurate, thorough, and well organized. Not only does this make the process of reviewing the company more efficient, but it also gives the potential buyers a stronger feeling of confidence about the presented information. The buyer is then more confident in the seller and is more likely to make a strong offer. If information is not presented accurately up front, the buyer will have less confidence in the seller and may need to change their pricing throughout the process or even rescind their offer.
5. Sellers can get emotional about the company they have worked so hard to build. An intermediary can help them take some of that emotional stress out of the sale and add a large layer of comfort to the seller just by confidently leading them through the process as well as significantly reducing the amount of time the seller must spend working on the sale. Intermediaries normally spend between 2000 to 3000 hours to get through the entire sale process. They are a lot more efficient than an owner is able to be, as the owner trying to sell their company must also focus on running the company. Additionally, a legal purchase agreement can be 200 pages long and is often filled with all sorts of brain racking legal jargon. A strong intermediary is able to guide the seller through the legal purchase agreement and significantly reduce the liability of a lawsuit post sale. This allows the seller to make clear, logical decisions about what is best for their company throughout the sale process.
Remember, this is the culmination of your years of hard work and long hours. Do what is the most beneficial for you; get more competition, stay confidential, control the sale, increase buyers’ confidence, and reduce stress and time. You only get one shot at selling your business, make sure you go for the gold!