Taking Your Business to Market
by John Burley
Whether on your own or with an adviser, finding the right buyer requires planning, negotiation, and flexibility.
Putting your company on the market should not be taken lightly. The process involves many steps and requires a well thought-out plan. Unlike real estate or the stock market, there is no single listing of businesses for sale. So, how do you reach potential buyers without the whole world, especially competitors and customers, knowing that your company is for sale? How do you set yourself up for effective negotiations? How do you present your business effectively? What steps are involved?
The best way to reach buyers, and to do so confidentially, is to hire an expert. The type of expert that will be best for you will depend on the type and size of the company you are selling. Companies with less than $1 million in sales, such as smaller retail establishments, will probably be best served by a business broker who will provide access to buyers and keep things confidential. Small firms with more than $1 million in revenues — especially services, technology, government and other sophisticated companies — are often best served by an mergers-and-acquisitions adviser who will negotiate the deal and advise you all the way through closing.
No matter what type of expert you choose, they should have access to the numerous venues and marketplaces to connect with buyers. Some are public and can be accessed on your own for a fee. Others are for the experts only. In addition, a good adviser should have contacts in your industry and have the ability to leverage their network to reach buyers that might not otherwise be accessible through the market venues.
Your adviser should also have the means to effectively profile companies, private-equity groups, and investors that would be a good fit for your firm, and reach out to them directly. Most seasoned advisers will have direct access to these, as well as an internally cultivated database of buyers. There are certainly databases of buyers that are accessible to all the experts, but be specific when asking your adviser about their own network and internal database.
Lastly, be sure to select an adviser who will work with other advisers and compensate them for referrals. A good firm will reach out to the thousands of brokers, advisers, and investment bankers to make sure that you have access to as many buyers as possible. If you are trying to sell on your own, look to employ as many of these strategies as possible. Listing your business on a website alone will not create the competitive environment needed to negotiate the best deal, and calling competitors on your own is risky business.
Presenting to Buyers
A good firm will engage buyers first on an anonymous basis, often using an anonymous profile of about two pages to gain their interest. Whether you are handling the sale on your own or through a firm, be sure to test your profile to ensure it is truly anonymous. Many people cut and paste from the company’s website and strip the names, but a few lines typed into Google can pull up the site in a flash and all confidentiality is gone. Here are a few more useful tips:
- Forget the marketing jargon — describe what the company actually does
- Don’t use flowery adjectives
- Describe the customer base and employees
- Include revenue and profit figures (even if they are less than impressive)
- Give narrative details on financials
After the buyer has been screened by you — or your adviser — and a confidentiality agreement has been signed, the buyer will typically then be presented with a book on the company, sometimes called a confidential memorandum, information memorandum, or similar. This is effectively the “presentation” on your business and should be a substantial document.
With attachments and exhibits, these books are often 30 to 100 pages or more. Some of the areas that should be covered include:
- A thorough executive summary
- Summary of products and services
- Description sales and marketing processes
- Overview of the customer base, contracts, vendors and partners
- Bios of key management that will stay post-acquisition
- Org chart and personnel overviews
- Detailed financial narrative
- Detailed adjusted financial statements (not just summaries)
- Credible and supported projections, if applicable
- Summary of deal expected deal terms and level of flexibility
Engaging the Buyer
After you or your M&A firm have courted the buyer anonymously, signed confidentiality agreements, presented the book on your business, and answered initial questions, the next step is often a direct meeting or conference call with the buyer. This is where the relationship building begins and the buyer can really buy-in to your business. The key in these meetings and calls is to be credible and forthcoming. This is your chance to “sell” the buyer on your company, but don’t oversell it. This is also not the time for negotiations. Let your adviser handle that offline, or come back to that topic at the next meeting if you are negotiating the deal on your own.
Preparing for the Offer
It is common at this stage for a buyer to make an offer or pass. As you begin to consider offers, be flexible; there are dozens of potential deal structures and the right one will vary from buyer to buyer. Remaining flexible and maneuverable is one of the key to getting the best deal possible.
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