As merger & acquisition (M&A) advisors who focus on the middle markets (small and midsize businesses), we are often asked about (1) valuation and (2) M&A process. While we understand why the potential seller is asking questions in that order, the topics should be reversed.
A good M&A process can drive valuation to higher levels. How do we know? In many of our deals, we exceeded the seller’s initial value expectations through organizing and running a professional M&A process for the seller’s benefit.
In 2021, there are many sellers considering exiting their business or taking money off the table due to pending tax changes being discussed in Washington D.C.
As it can often take 90 days to run a good process and another 90 days to close a deal between a buyer and seller, the question becomes “Is there still time in 2021 to get a deal done?”
The answer is yes, and it will be tight if you want to do it right. The easy way is to simply accept your first offer. However, that may not be your best deal or value for your business. Given that you may only exit your business once or twice in your life, you want to guarantee the best value for what you have created. Don’t rush and short-change yourself.
So how do you shorten the cycle and obtain the best price for your business? Our advice is:
1. Get a professional M&A advisor
Find one with experience. You don’t want someone to save time through shortcuts that may cost you value. You also want someone who knows the space you’re in, and can reach a large potential set of strategic and financial buyers in a hurry.
2. Set process parameters that work for you
For the best process parameters to create value, try not to shorten the buyer reach-out process as you want to make your M&A process as competitive as possible. Try to cut the time to close. Realizing that deadlines are often missed in M&A processes, you must understand where the risks lie – relative to potential delays. For example, taking the time to involve a lender can benefit some potential buyers’ valuation, but the more parties involved in a transaction, the longer it takes to complete. Therefore, an acquirer that either has cash or an existing credit line is preferred when timing is an issue.
3. Prepare your due diligence in parallel while your advisor runs your M&A process
To close your deal quickly, you’ll need to survive a due diligence process in a timely manner. As 90% of buyer diligence questions are similar, ask your M&A advisor for the list of diligence items at the beginning of your process. While the advisor runs your M&A process, you can begin preparing the answers that will be required to successfully close your deal.
In summary, if you are thinking about a full or partial sale of your business in 2021, there is still time, but you’ll need to be efficient and knowledgeable about the M&A process to save time while still obtaining the best price for your company.