Bidding War

How to Trigger an M&A Bidding War When Selling Your Business

How To Trigger A Bidding War For Your Business

Cody Weaver , CONTRIBUTOR

I write about improving the value of your business. Opinions expressed by Forbes Contributors are their own.

One of the toughest things about selling your business is attracting an acquisition offer and creating a bidding war without putting a metaphorical “FOR SALE” sign on your company’s front lawn. My day job is running a company called Business Acqusition Experts, where we help companies build corporate value through exit planning. With the end goal of taking the businesses to market and monetizing their equity aka “their life’s hard work” through a sale to a stratetegic or financial buyer. One of the key tenets of our methodology is the idea that, to get a premium valuation, you need buyers coming to you, not the other way around.

John Dorsey

How do you get buyers keen to make an offer and lure them into A Bidding War without telling them you’re for sale? If you sound too keen to sell, a buyer will assume there is something wrong with your company. At the same time, if you appear standoffish, an acquirer may assume approaching you would be a waste of their time.

 

 

The Magic Letter

In 2001, John Dorsey started an safety consulting firm called Safety One Advisors, Inc in Newark, New Jersey. Dorsey grew Safety One to be a successful, consulting practice. He was an active marketer and sponsored local sports teams and events, making him a well-known figure in the area.

In 2016, Dorsey received an unsolicited offer to buy his firm from a competitor he respected. As Dorsey told me when I spoke to him in our initial conversation, he was not planning to sell, but warmed to the idea as he imagined moving on to a new chapter in his life. When the deal fell through because of a financing glitch on the buyer’s side, Dorsey was disappointed. He had become emotionally committed to selling, but no longer had a buyer. What’s more, he operated in an area and a niche industry where they were only a handful of competitors, so getting the word out he was interested in selling without spooking his clients and employees would be tricky.

Dorsey eventually hired us and together we surveyed the landscape of competitors and strategic buyer’s operating within his market vertical. And identified a couple of firms that he respected and we sent the owner’s a letter. The note simply stated that Dorsey had received an unsolicited offer to buy his firm which he had been seriously considering; before making any final decisions, we wanted to know if the other owner’s would also be interested in making a bid.

The letter sets the right tone for a few reasons:

  1. It’s truthful. He had been seriously considering an offer
  2. It doesn’t sound desperate. Dorsey had been sought out
  3. It’s non-committal. It doesn’t say he is for sale, or that he is going to sell for certain, merely that he was seriously considering an offer

In the end, several of the  recipient’s  of Dorsey’s letter were interested in expanding and simultaneously made offers which put us in a prime position for a bidding war. One buyer eventually won the bidding war and acquired Safety One for 1.25 gross revenue—most of which was paid at closing with a few smaller payments due over time. Professional services firms like Safety One usually sell with a significant portion of the consideration in an earn-out, a bonus scheme that puts a portion of the sale price at risk and it only becomes available if the seller stays on and helps the buyer achieve their goals in the future. With our guidance, Dorsey was also able to avoid an earn-out in part because the buyer knew—thanks to the letter —his firm was in demand, giving Dorsey a little more leverage to get the terms he wanted.

If you’re keen to sell, consider a variation of Dorsey’s letter, which strikes the right tone between confidence and openness.

For more information about How to get more $$$ for your business, Please read this article as well: http://acquisitionspro.com/high-business-sale-price/

 

 

 

If you’re considering selling your business in the future, please feel free to reach out to us for a free no-obligation consulation. www.acquisitionspro.com

 

 

unexpected events when selling a company

The Top 3 Unexpected Events CEO’s May Encounter During the Selling Process

When it comes time to sell a business, not everything goes as planned. Having Unexpected events when selling a company is not uncommon for  CEO’s and Business Owner’s. However, you may be one of the lucky ones. And find that selling your business is a streamlined process. But most CEO’s looking to sell a business find they can expect the unexpected. Let’s take a closer look. Here are some of the top surprises CEO’s experience.

Unexpected events when selling a company #1-

 Surprisingly Low Bids 

 

Selling a Business or Company is full of pitfall’s. Avoid mistakes and work with experienced advisers.

CEO’s looking to sell their businesses need to be ready for almost anything. One of the larger surprises that CEO’s face are surprisingly low bids. Don’t let low bids shock you. Read more here about how to increase value in your business. And get much higher bids. Click the link!

Unexpected events when selling a company #2 – 

A Huge Time Commitment

CEO’s have to a substantial amount of work to do before their company goes to market. Responsibilities like the confidential information memorandum and management presentations are highly important. They should be well thought out. Creating a list of potential acquirers also requires a lot of research. The confidential information memorandum is considered the cornerstone of the selling process. A CIM is typically at least 30 to 50 pages in length.

Most business intermediaries expect the potential acquirers to submit their initial price based on the information contained in the memorandum. Management presentations are also time consuming, but it is common to have these presentations ready before the final bids are submitted. Ideally it is best for the CEO to show the benefits involved in combining the acquirer and the seller as well as the future upside for selling the company.

Unexpected events when selling a company #3 –

The Need for Agreement from Other Stakeholders

CEO’s are able to negotiate the transaction, but the sale isn’t authorized until certain shareholders have agreed and done so in writing. Until the Board of Directors, shareholders and financial institutions who may hold liens on key assets, have agreed to the deal, the deal simply isn’t finalized. Often this legal necessity turns out to be an issue that gets in the way of a successful deal.

Sellers can take their “eye off the ball” during the time-consuming process of selling a company, however, this can be a serious mistake. CEO’s must understand that potential acquirers will be examining monthly sales reports with great interest. If potential acquirers notice downward trends they may want to negotiate a lower price. No matter how time consuming the sales process may be, CEO’s have to maintain or even accelerate sales.

Selling a business can have a wide array of surprises. Avoiding these kinds of issues is paramount. The good news is a CEO can drastically reduce them. Proper prior planning prevents poor performance. It is vital to keep in mind that the best practice for selling a business is preparation and diligence. There can still be many surprises when selling a business. When selling a company. It is always a prudent move to hire or consult with a business broker or M&A specialist. Many offer free consulting and will help you prepare. Their goal is just to build a relationship. In hopes one day getting a sell side engagement.

Cody Weaver President at Business Acquisition Experts- “It is our goal to ensure the successful exit of as many fellow entrepreneurs as possible

Copyright: Business Acquisition Experts

Business Brokerage Press

 

M&A Market Conditions for Manufacturing and Distribution

2017 M&A Market Conditions for Manufacturing and Distribution

This particular report focuses solely on U.S. Companies in the manufacturing and distribution sectors, that have been recently sold or involved in an M&A transaction. Each quarter the IBBA and M&A Source present the Market Pulse Survey with the support of Wharton Private Capital Markets Project and Wharton School of Business & Management. The report measures the current market conditions for businesses sold within the United States.

June 28, 2017 Tinton Falls, NJ

 Q1 of 2017 had some interesting insights for the manufacturing and distribution sectors that every business owner should be aware of. The report revealed 4 things you need to know about the current M & A Market.

  1. Manufacturing and Distribution Companies Sold More Than Any Other Type of Business 

    Manufacturing & Distribution

    Manufacturing and Distribution businesses are highly sought after by a broad spectrum of local and international buyers.

During the first quarter of 2017 more manufacturing and supply chain companies were sold in the US than any other type of business within the $1-$5 million AND the $5-$50 million revenue category.

  1.  Multiples Are Trending Upward & Sellers Are Getting Close to Their Asking Prices

For lower middle market transactions multiples for Q1 ranged from 4.75-5.75X EBITDA. Businesses with revenues between $2-$50 million sold on average at 92% of their asking price.

For businesses with revenues between $2-$5 million, Sellers on average received 81% cash at closing, with 10% of the deal being financed by the Seller and the remaining balance held in an earn-out. Businesses with revenues between $5-$50 million sold with 76% cash at closing, 14% Seller financing and the balance held in an earn-out. While not all of the transactions consummated in this report involved an earn-out or seller financing, the vast majority did. Does your business qualify for M&A?

  1. Who Is Buying and Where Do They Come from?

For deals with companies in manufacturing and distribution that were under $5 million, 42% are first-time buyers and 40% are repeat owners adding to their portfolio. At Business Acquisition Experts, Inc., we found this percentage of first time buyers to be substantially higher. In fact, this is the largest category of buyer for us in all transactions between $2-$15 million. Strategic buyer’s comprised of 18% of deal flow. It’s been noted that most strategic buyer’s have a few of the same common core goals for acquisitions:

M&A Buyers for Manufacturing and Distribution companies

Buyer Demand for profitable and well managed businesses with growth potential is at an all-time high.

  • They are looking for accretive acquisitions
  • Industry Roll-ups or Consolidations
  • Faster growth through acquisition
  • Access to market share in a certain geography or strategic location

The list of synergies can go on and on for why it makes sense for other corporations to pursue an M&A strategy. These are some of the top reasons Why we see deals being consummated by strategic acquirers in the manufacturing and distribution sector. Strategic Buyer’s typically pay much higher premiums than other buyer’s in the marketplace. Want to learn how to sell to a strategic buyer?

For deals between $5-$50 million, the Market Pulse report showed 39% were sold to private equity firms and 30% to existing companies seeking expansion through acquisition.

For lower middle market deals, 41% of buyers come from more than 100 miles and an additional 39% come from more than 50, but less than 100 miles away. This statistic should be of paramount concern to those business owners seeking to engage an M&A or business brokerage firm. The company you hire needs to have more than a local audience to successfully sell your manufacturing or distribution company.

 

  1. How Long Does It Take to Sell a Business?

For companies with revenues between $1-$50 million, the average time to close was 9 months with 4 months from acceptance of the Letter of Intent to closing. At Business Acquisition Experts, Inc., we’re experiencing a slightly lower average.

Mergers & Acquisition professionals dealing in lower middle market businesses generally believe that we are currently in a Seller’s Market. Manufacturing/Distribution continues to dominate and are the most sought after businesses in the lower middle market. Clearly the current M & A Market is good news for retiring business owners.

 

Concluding Thoughts

While the results above may be exciting for owners seeking to retire or exit for various other reasons, it is clear that one must have a comprehensive exit strategy in place to take advantage of the current “seller’s market”.  A recent article in Forbes Magazine noted that 73% of business owners do not have a succession plan or exit strategy in place.

Exit Strategies

When it comes to selling a Business.”Failing to Plan is Planning to Fail”

BAE can assist owners in developing an exit strategy structured around personal and corporate goals to ensure the desired outcome is achieved at the time of transition.  Minimized tax burden, preservation of the company founders’ legacy, reduced exit time, financial success, and the ability to act quickly in the event of unforeseen circumstances are all benefits of having an exit strategy in place. The biggest advantage any business owner has on their side is time. Allocating time to correctly prepare a business for sale can be the difference of millions of dollars….or whether it sells at all. Don’t know where to start? Speak to a professional for Free.

Whether planning to depart in 5 months or 5 years, it is important to start the process now and be properly prepared.  Failing to plan is planning to fail, schedule an appointment with an M&A professional to start the process that will maximize success and ensure desired outcomes.