Whether you’re running a company or business looking to expand or you’re looking to exit your current business by finding someone to acquire your company, here are eight crucial things to consider and ask yourself when selling your company:
How to position yourself and your company?
When you’re looking for capital and money, there’s huge competition for those sources of money. So, before you go out and make a deal, ask yourself this:
- Are you a Brand?
- Are you a manufacturer?
- Are you a leader?
Determining the correct position you should take for your company can mean a huge difference in valuation.
The main thing is you don’t want to position yourself as someone trying to get out of the business because if that’s the position or impression you give, you won’t get a good valuation. If you position yourself incorrectly, it could mean a difference of selling at $10M versus getting a $100M valuation.
Who are you targeting for capital?
The next thing to consider is, who are you considering to approach for capital or acquiring your business?
- Is it an overseas competitor?
- A private equity fund?
- Are looking for foreign capital?
Don’t broadcast the fact you’re looking for a deal
If you are in the market for making a deal, you want to close a deal with in 15 to 30 days. If you look like you’re going to take 6 months or more to close a deal and everyone knows you’re looking for the money you run a high risk of not getting the money.
I recently sat down and asked our Mergers & Acquisitions (M&A) specialist and here’s an example he shared with us:
“We were working for a low-cost airline carrier. As you know, low-cost carriers were in great demand. Even 2 to 3 years ago, you could just sell them off the flip.
This particular company had been on the market for almost a year. They came to us, and brought their value down to almost 10 percent of what they’re looking for.
My first question to them was, “How long have you been in the market?” They said, “A year.” I said, “That’s where the issue is. If you’ve been out there, and trying to save money, trying to do this yourself, not using an M&A expert, you’re ending up going and speaking to people, and it looks like you’re desperate.
You really don’t have the value up there. That’s what we need to avoid.” The structured deals now that we have to come across in the market is somebody who has a great value proposition, but at the same time is not desperate to sell out. You do need a 3 to 4 month, 6 months pushing. Which means, if you cannot find a buyer, you cannot be out there seeming like, “I accept any price.”
Don’t be in the market looking for capital for too long
As we mentioned in the example above, if you’re looking for a deal, then you need to close quickly. You can’t be seen in the market not being able to close a deal for a year. You’ll be in a position of weakness when it comes to getting a higher valuation.
Go for 100% equity or build a bridge?
Ask yourself if you are going for 100% equity, which is just to sell out OR do you want to just build a bridge? Which means for about 6 months to 12 months, you’ll get some kind of a mezzanine financing or a middle-tier debt financing until you can find the right value. I’d say a lot of the deals being structured now have two phases:
- Where you basically tell the acquirer, I’m only ready to sell 10-20 percent. A strategic stake. At which point, I’ll continue to operate this thing. You can see the quality I’m talking about, you can see the kind of stuff I can offer…
- …and then within 12 months to 24 months you can come in and acquire it.
You have this M&A model right now where no one is going and acquiring 100 percent because they’re not sure if you have the execution capability and you have the financial capability. What they’re doing is: “Fine, we’ll come in, we’ll buy 10 percent of your company, we’ll put up the capital so that you can continue to run. If the model works out, we’ll go ahead, and then make the company acquisition”. I’d say that’s the scenario we’re in. That’s the kind of structuring that you’re going to get.
Be transparent/honest
One mistake many entrepreneurs and business owners make when looking for a deal is trying to “window dress” the books and accounts. It’s always better to be honest and open and have an M&A expert with you to explain the to the other party what issues you faced to affect the financial performance of your business thus far.
Global investors prefer companies that come across as very frank. Even about the problems that they’re facing. I think that’s a critical aspect in this kind of market. That you come across as honest, you come across as somebody who doesn’t make things up, and you’ll get the right valuation. I’ve always said, of course you need a mergers and acquisitions expert to put all of these together. That’s a very critical aspect at the moment.
Let the other party give a number first
If you get to a point where you’re dealing with a potential buyer or seller, the key is to NOT be too quick to throw out a figure. Wait for the other party to give you a number. Because the other party could be looking at the market differently, so potentially you could have them opening with a figure that is ten times what you may have started with. So, the best thing is to never offer a figure first.
Don’t go at it alone
With everything we’ve mentioned above, it’s likely you don’t have the experience in doing many of these things on a regular basis (how often can someone be selling companies?). So, the biggest mistake is trying to do a deal or go about it without the RIGHT help.
Think about it, this is something you’re going to end up paying hundreds of thousands of dollars, millions of dollars for.
If you’re just looking for advice before you can go ahead and spend that kind of money, having someone with expertise like us is a no-brainer.
Because within an hour, hour and a half, on a 1 to 1 basis we can really help you see your company in a different perspective position. Then of course, I think there’s also a feel good factor when you see yourself being, or having you see differently what you created. I think it just gives you a very different perspective of how much your company can be worth than what you think it is worth, which is usually higher.
For example, positioning yourself and your company for a higher valuation:
It’s like diamonds. If you have a diamond (your company), probably, nobody knows what it’s worth. But, you polish it, you get the right carat done, you put it in the right packaging, you put it in the greatest shop, it’s got a totally different value.
That’s what we do for you. Essentially create something which is just lying somewhere, get it polished and put it out there.
Or when it comes to knowing WHO can provide capital, we can put in touch with the RIGHT source of capital.
Or how to put together a sophisticated investor presentation, do you what angel to take? What are investors looking for? What should include or not include?
These are all things that require guidance from someone who’s done it before.
So, I hope this has brought a new perspective for you if you’re thinking about selling your company or looking to expand and grow by looking for a bigger suitor.
Need help with M&A transactions or your exit strategy?
Check out our M&A Masterclass where our expert shows you how to navigate the minefield of M&A transactions. Click here.
