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Selling your Small Business: Don’t Go It Alone

While the topic of selling your business is certainly not a novel one here on our blog or radio show, The Second Stage, my recent conversation with the co-founder of divestopedia, John Carvalho, sparked some exceptional points on why having a great advisor is so important during what may possibly be one of the biggest events in both your professional and personal life. As you plan to sell your business, I would offer two pieces of advice: (1) you can never start too early and (2) don’t go it alone. During my discussion with Mr. Carvalho he notes that this is an event that most business owners will go through once, perhaps twice, in their lifetime. So while you are the expert in YOUR business and maybe even industry, you are most likely not an expert on the sale or M&A process, but importantly, there are those who are. And it is worth noting that finding the “right” expert can truly be life altering.

Identifying the Right Advisor

Business Owner finding the right advisor for sale processNow, while I certainly encourage you to seek the expertise of an M&A advisor or investment bank (and there are various types) who has gone through the sale process possibly hundreds of times, I go back to my first piece of advice, you can never start too early. All advisors are certainly not created equal and finding the best fit for you and your business is imperative and a process in and of itself. During our conversation Mr. Carvalho notes that it is not enough to just find the right firm, but identifying the right individual to lead your transaction is key. He offers these suggestions when evaluating your deal lead:

  • Understand if your deal is a priority and if he or she will be accessible during the process? How many deals is he or she leading at once?
  • Know their deal making experience and reputation. How many transactions have they gotten over the finish line?
  • What is their network like? This is still an industry of who you know.
  • And finally, but perhaps, most important, good chemistry and trust with the deal lead is vital to the success of the sale process.

Role of the Advisor

I asked Mr. Carvalho, in his experience, what business owners should expect the role of their investment banker to be. He summarized with these points.

  • Flush out the objectives of the owner. What are his or her goals and priorities for the sale? Obtaining a maximum value, Employee protection, etc…
  • Establish and manage expectations. Good advisors know what the market will bear and the most likely deal structure.
  • Create marketing documents and solicit qualified buyers.
  • Negotiate the deal with the ultimate buyer.
  • Be the quarterback during the entire sale process. It is crucial that the business owner not be distracted during the process and have the ability to continue running his/her business. The sale process can be long and not hitting budget can be detrimental to a deal.

And of course there is the topic of investment bank fees. Is there an industry standard? Are fees negotiable? Mr. Carvalho notes some general rules of thumb when it comes to fees based on the enterprise value of the business during our conversation, adding that more important is the fee structure. He encourages business owners to really dive into the fee agreement, as this is where negotiations come into play. Particular points to be aware of include exclusivity and the fee tail.

To learn more, access my entire discussion with Mr. Carvalho here.

 

Posted by: Jeffrey Kadlic A co-founder and managing partner at Evolution, Jeffrey has spent the past 15 years as an investor and private equity professional with a true passion for working with dynamic small businesses. @kadlic

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