Selling your business is a significant and complex transaction. A coordinated team of experienced advisors can help you maximize financial outcomes, achieve transaction objectives, and avoid common pitfalls. Here’s how to find the right team to support you through every step.
Jane and John Smith* sat at the closing table, still in awe of the proceeds they had just received for their life’s work. It felt like a dream to be at this point. After spending years preparing to transition their business and enduring months of due diligence before closing, they finally accomplished their goal.
As they shook hands with the buyer, they thought about the many advisors who had been so critical in helping them attain a successful transaction closing. They realized they wouldn’t have been able to achieve the valuation they did, maximize their net proceeds, provide opportunities for their management team with the new owners, and negotiate their ideal post-closing exit from the business, without the sound advice they received from their full advisory team.
Navigating the sale of a business is often the most significant and complex transaction of an owner’s life. Doing it right is paramount and having the support of a coordinated and experienced advisory team is critical. With the right advisors, you’re better equipped to identify optimal buyers for your business, prepare for buyer discussions, navigate and mitigate complex transaction issues, help maximize transaction proceeds, and ensure a smooth transition after close.
Navigating the sale of a business is often the most significant and complex transaction of an owner’s life.
For every Jane and John Smith, there are many other sellers who, while achieving decent financial outcomes, have left significant dollars on the table. They’ve suffered the pitfalls many unprepared buyers face, including a poorly designed sale processes, improper positioning of the company and its financials, avoidable eleventh-hour adjustments, unnecessary income tax liabilities, and poor wealth transfer planning resulting in larger estate tax liabilities for the family over time. Don’t let that happen to you.
As you look to sell your company, there’s much to be learned from the Smiths and others who have achieved successful outcomes, but perhaps the most important takeaway is understanding the roles and responsibilities of a competent and comprehensive advisory team.
Why advisors matter
The stakes are high in a sale transaction, and, with the wrong advisors, you can face serious challenges. When thinking about selling your business, your first instinct might be to call an existing advisor, perhaps your company CPA or corporate counsel who you’ve worked with for years or even decades. Although these advisors bring valuable institutional knowledge and insights to the equation — and have an important role to play in your transaction — they may not have the depth of capabilities or skills specific to mergers and acquisitions (M&A) transactions.
While the “singular trusted advisor” model may have worked in the past, today’s market is more sophisticated, and the technical aspects of transactions are more complex. On the other side of the transaction, you may face a sophisticated, informed buyer with an extensive team of internal and external advisors supporting them, driving increased deal speed with honed negotiation skills. It’s crucial to be armed with a team with comparable skillsets and capabilities to ensure you’re equally prepared and well-represented throughout the process.
While the “singular trusted advisor” model may have worked in the past, today’s market is more sophisticated, and the technical aspects of transactions are more complex.
So, what advisors should you have and what are their roles in the sale process? The following graphic explains the five specialized roles in the sale of your business.
Each of these roles is critical to the successful outcome of a transaction. Here’s what to look for when choosing advisors for each role.
Investment banker: Your investment banker should have extensive transaction expertise and deep market insights, along with a track record of successful closings in your industry. They should know and understand the potential buyer universe. This combined knowledge and experience helps them position your company to buyers to maximize interest and value. Prior to launching a sale process, your investment banker should provide objective recommendations to help increase the probability of a successful exit. Positioning strategies might include augmenting your management team, implementing incentive plans to retain key management personnel, diversifying your customer or supply base, streamlining corporate structure, or acquiring a business that will significantly improve your overall value.
Due diligence advisor: It’s important to engage financial due diligence professionals who have specific experience in tax and quality of earnings (QofE) assessments for M&A. A QofE is an analysis that independently validates your company’s financial results through the lens of a transaction. It’s used proactively by sellers to determine potential financial and accounting pitfalls and opportunities, and by buyers in the diligence process to validate what has been provided to them.
Tax advisor: While the QofE is being completed, an M&A tax advisor should complete a detailed transaction analysis to determine the ideal structure to optimize your net proceeds. Your investment banker will be able to leverage both the tax analysis and the QofE to best position your company with buyers and negotiate the best outcome for you.
Personal wealth advisor: On the personal side, you should engage early with wealth management experts to assess how the transaction fits into your financial independence plans. There are likely a multitude of planning opportunities to explore and execute in an effort to thoughtfully create and fund family entities (trusts, LLCs, etc.) and prepare a multigenerational investment strategy so that at close, your wealth is preserved — potentially across multiple generations, and future estate taxes are minimized. For some business owners, a transaction is the culmination of decades of hard work and dedication to a singular business and the transition from market-maker to market-taker can be difficult. It’s important to work with an established wealth manager who can ease the transition and is prepared to help you move onto whatever the next phase of your life represents.
Legal advisor: Last, but not least, it’s important to engage experienced M&A legal counsel. The legal documents associated with a sale transaction are specialized, with unique provisions around indemnification, representations and warranties, and deal structure. Legal counsel with an extensive track record advising on M&A transactions of similar size and sophistication will help ensure your deal terms are appropriate, making negotiation more efficient.
The final and perhaps most critical element of selecting advisors is ensuring that all of these professionals are coordinated and sharing their respective insights and conclusions with each other. Good team coordination dramatically improves the probability of success.
Initiating conversations with advisors
When should you start talking to your advisors about selling? It’s never too early. As in the case of Jane and John Smith, many of the best transaction outcomes are the result of thoughtful planning and strategic structuring that began years in advance of the transaction. An effective way to start the planning exercise is to undertake a strategic assessment.
When should you start talking to your advisors about selling? It’s never too early.
The strategic assessment:
Provides a current estimate of likely market value for your business.
Outlines the transaction alternatives available to you.
Highlights opportunities to increase enterprise value prior to taking your business to the market.
Identifies potential company or market-specific risks that may affect transaction outcomes.
A well-performed strategic assessment produces a comprehensive roadmap that helps you determine the optimal preparation tasks and timing to initiate your sale transaction.
Building your advisory team
When choosing your advisory team, it’s important to understand that specialized M&A advisors shouldn’t be seen as a threat to your current or long-time trusted advisors’ role. Long-term advisors have important institutional knowledge and familiarity with your company and bring inherent trust that you’ve built with them over time. In many cases, they’re invaluable to the process. For example, outside legal counsel often works alongside specialist M&A counsel by assisting with legal records of the business, providing legal due diligence, and serving as a trusted voice.
How do you identify the right specialist advisors and start building your team? The investment banker is often the first role filled. Start by asking trusted industry peers and existing advisors who previously have worked with investment bankers for recommendations. When selecting an investment banker, look for industry connectedness, depth of relationships, and a track record of securing great outcomes for their clients. Finding the right personality match is also important. Transaction processes can be long and stressful, and having an approachable partner helps build trust in recommendations made during difficult phases in the process.
Investment bankers often can recommend qualified transaction-focused advisors to add to the team, such as financial due diligence experts and M&A legal counsel. If you already work with a midsized or larger accounting firm, that firm may have these professional capabilities, so ask your CPA for recommendations. Finally, your peers, investment bankers, and CPA may also be able to help you find wealth advisors skilled in personal balance sheet planning. A thoughtful vetting process should assess certain characteristics and evaluate advisors’ ability to support sound personal planning prior to a transaction.
These are some best practices that have proven effective over time. As with Jane and John Smith, the key to a successful sale is to start early, strengthen your starting position with a strategic assessment, and select a team of advisors who know your industry, will work well with you and each other, and most of all, prioritize you and your interests for the outcome you deserve.
