How Long Does it Take to Sell a Business?

Four months, six months, eight months, two years? How long does it really take — soup to nuts — to complete an M&A transaction?

We are often asked this question from owners who are considering a sale.  The quick answer is that nothing is “standard” in the market conditions we have been experiencing for the past 2 years.  We have been finding that the sale process, whether through a broad auction or a “direct” negotiated sale, has been taking longer than in the past for two main reasons – buyers are doing even more financial and operational due diligence to confirm what they are buying and their investment thesis, and the underwriting process to obtain debt financing for cash flow intensive (“assets go home in the elevators”) businesses continues to be difficult.  In this context it could take upwards of one year or longer to complete a deal, depending, of course, on market conditions and the size and complexity of a transaction.

To Speed up Transaction Time – Preparation is Key

The more you prepare in advance before talking to prospective buyers, the more time you will save during the sale process. I just saw this happen in real time with an owner who decided to engage in discussions with a buyer.  But after the introductory call realized he didn’t have his financial house in order and it was going to take 30-45 days before he could share any reliable financial information.  To avoid this and other potentially adverse situations with a buyer, here are a few tips to get ready:

1. Put together an Adjusted Income Statement that shows your company’s current and historical performance.  This is a critical component to any buyer’s pricing analysis.
2. Prepare a due diligence list.  This will help you see what a buyer will typically ask for after executing a letter of intent.
3. Determine which staff members will be “in the know” about the sale.  This is critical because you will need someone to help you with the discussions/information sharing process with buyer prospects.  Typically we see owners bring their CFO/Controller into the fold.
4. Put together client profitability/site analysis so the buyer can understand which clients and/or sites are driving profitability for your company.
5. Prepare a budget forecast with assumptions prepared for (at minimum) the next fiscal year, broken down on a monthly/quarterly basis.
6. Line up a skilled transaction attorney who is familiar with your industry.  Do not assume that your business attorney who has been dealing with your personal and business matters for a number of years is the right person for the job.
7. Address any “skeletons in closet” before you start talking to buyer targets.  For example, any state/federal regulatory issues, anticipated rate changes with clients, “out of trust” balance sheet issues with clients, etc., should be tackled internally both in terms of finding solutions where possible and developing a plan for communicating challenges to targets

Auction vs. Negotiated Sale Process

Once you have positioned your company for the transaction process, you have some important decisions to make:

• Do you go down the path with the buyer that called you last week and see if you can hack out a deal?
• Do you go the auction “sale” process route where you approach multiple buyer targets, control the timeframes and minimize confidentiality breaches with the ultimate objective of receiving competing offers from interested parties?
• Do you engage an M&A advisor to assist you?

Here is the CliffsNotes version of the typical process an M&A advisor will go through for the sale of middle market business:

1. Assemble marketing materials about the company, develop a buyer target list that typically consists of industry, strategic, and financial buyers that the seller would review and approve.
2. Execute NDAs with buyer targets, distribute marketing materials, set up conference calls and receive follow up information requests
3. Receive non-binding indications of interest
4. Select parties for management presentations
5. Conduct management presentations and answer follow up questions
6. Execute a letter of intent
7. Conduct due diligence, sign a definitive agreement and close the deal

The benefit of an auction process is that you know that you are going out to the market and talking to multiple buyers at the same time to assure that you are truly maximizing value with a business that you have poured your blood, sweat, and tears into. The drawback is that the owner has to be truly committed to a sale, not just wanting to be opportunistic.

Take Your Time – Don’t Rush

My best advice is to take the time to evaluate whether you personally, and your business, is ready for a sale and then determine how best to move forward.  Building a business does not happen overnight and either does a sale.  It is a delicate process and it is going to take time and resources to get to the finish line. Rest assured, transactions do get completed, even in tough economic times.

Have a great holiday season.

If you have any questions, feel free to call/email me.

Michael D. Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly from Kaulkin Ginsberg’s Philadelphia, PA office at 240-499-3808 or by email. You can also read his blogs, follow him on Twitter, or network with Michael on LinkedIn.