General, Advice for Entrepreneurs, Mergers and Acquisitions, Editorial, Pre-sale Planning, BPO, Human Capital Mgmt, Government/Defense/Aero, Manufacturing Automation, Business Services, Selling a Business, Tech Enabled Services, Consumer, Family Business, Professional Services, Corporate Divestitures, Food & Beverage, Resort, Partial Liquidity, Healthcare, Industrial, Building Products, Distribution & Logistics, Strategic Advisory, Electronics Manufacturing, Industrial Manufacturing, Technology, Software, Internet & Digital Media, Hardware & Peripherals, Telecom & Networking
The bad news for business owners who are ready to sell their company and retire is that it takes much longer than you might anticipate to close the deal. According to the Pepperdine 2014 Private Capital Markets Project, only 25% of deals close in less than six months.
So why does it take so long? Let’s look at the steps involved in selling your company:
- Determine marketing strategy, create list of potential buyers and prepare marketing materials
Preparing your company for sale generally takes 4 to 6 weeks, but if you are unprepared for the volume of information that we will need in order to create the confidential offering memorandum (“CIM”) and the preliminary due diligence data room, it can take much longer. Occasionally, we may identify some potential issues with your financial reporting or operational issues that need to be fixed before we can start reaching out to buyers. It also takes time to do research to develop the optimal list of potential buyers for your business, which may include competitors, companies desirous of entering your market, or private equity firms.
- Contact prospective buyers
During this stage, you are busy continuing to operate your business, and Mirus is busy making phone calls and sending emails to a list of buyers that often includes 100 or more companies and PE firms. Depending on the time of year, this can take 4 to 6 weeks or 2 to 3 months. During the summer months and the holiday season, it takes much longer to reach the decision maker to make the pitch.
- Buyers initial diligence and buyer meetings
Buyers early due diligence includes reviewing the CIM and preliminary due diligence information in the online data room. After submitting indications of interest, which are your first chance to see how buyers are valuing your business, a select number of buyers will be invited for meetings with you and your management team. We attempt to schedule these meetings all within a short time frame, but coordinating the schedules of your management team and members of the buyer’s team may impact how quickly they can be scheduled, so plan for these activities to take 6 to 8 weeks.
- Receive and negotiate letters of intent
By this point, you can be 3 to 4 months into the process of selling your business. Letters of Intent are highly detailed documents that not only identify the price and structure of the transaction, but should also specify the buyers’ views on some of the other critical business issues that will be addressed in the purchase agreements. Depending upon how many buyers have submitted Letters of Intent, negotiating these agreements to ensure you are getting the best price and terms can take 2 to 4 weeks.
- Buyer’s confirmatory due diligence and preparation of legal documents
Now you’ve signed the Letter of Intent and are moving to a close! All the hard work is done now, right? Wrong… Now the buyer will spend from 30 to 90 days confirming that all of the information we’ve provided to them about the company’s financial conditions, operations, future prospects and ownership is true and complete. During this stage, you will be asked to provide more information than you ever realized you HAD about your business. But at least right now there is some multi-tasking going on, because at the same time, their lawyers and yours will be working to draft the purchase agreements.
It’s finally here – it’s been 6 to 9 months since you started the process of selling your business, but this is the day the wire is hitting your bank account! Congratulations!
I hope this article has helped you to understand why the process of selling your company takes so long. If you’d like to know how to prepare your company for sale so that you can reduce the time to close the deal, watch this space for next month’s blog post.