Adopt a Strategic Approach to Selling Your Business
It is critical to adopt a strategic approach to selling your business. Yet, few organisations truly grasp the importance of this first step. Of those who do, relatively few really conquer it.
The strategy planning step is often skipped as businesses rush ahead to steps three four or five, often only a few months prior to the date they want to be sold. Too little - and way too late!
Begin Planning Your Exit Years Ahead
This is an all too common scenario. A business owner’s typical approach begins a scant few months ahead of the date they intend that the business be sold. In fact, they should have been planning for this day years in advance. There are decisions that need to be made very early and processes that need to be established within your organisation that will not only add value but will also make acquisition and integration easier and more likely to succeed.
The Ubiquitous Information Memorandum
The second step most business owners take is to create the ubiquitous “Information Memorandum”, which contains all the information about the company that a potential buyer could want. NO, NO, NO, NO!!!
Unfortunately, the majority of M&A transactions are managed by accountants and lawyers, rather than commercial sales people; therefore, production of the “Information Memorandum” has become the accepted norm. M&A is a sales process, pure and simple.
High Failure Rates When Accountants & Lawyers Run the M&A Process
If accountants and lawyers are such great sales people, they should be out selling your software and products. Consider this, if somebody approached one of your company sales people about one of your products or software solutions, how would you view that sales person if, as a first step, s/he gave them a 200-page manual and said, “There you go. Everything you need to know is in there!!”
You would, of course, be flabbergasted – so, why treat the sale of your business like that?
Once they have created the weighty tome which even has its own acronym - the “IM” - the next step is to create a list of organisations they think may be interested in their company. In a majority of cases, this begins with a list of their competitor. However, it is very likely this will not prove to be where they will find a buyer who values what they have to offer.
The Holy Grail: Finding that One Perfect Buyer
Armed with the detailed Information Memorandum (IM) and their list of possible buyers, they set off in search of the Holy Grail - that one perfect buyer. Typically, this approach fails miserably; yet the behaviour continues.
A more considered approach begins well before you start to profile your organisation.
1. What is your primary reason or objective for selling your business? This must be agreed and clarified with all key stakeholders and shareholders at the outset as it is pivotal to your exit strategy.
2. Is the timing right? This requires in-depth knowledge of your market and an awareness of the current market drivers in your own and associated industry sectors. Other timing issues may hinge on the financial health and performance trend of your business and will also include how well established your systems and processes are.
3. Is your business “Sale Ready”? The question of whether your business is ready to be sold and whether the sale price will meet your expectations will not be based on some mythical calculation of multiples of EBITDA. Rather, it involves several influencing factors:
i. For example, how effectively will the business operate without the business leader/s. Do the key relationships and key sales accounts depend on the exiting executives?
ii. What management systems are in place to assist a seamless transfer of ownership? Without these, the business is less attractive as it will involve additional expenditure by the buyer. What risk is there from the loss of key employees? In particular, regarding loss of productivity, loss of company IP and critical expertise?
iii. To achieve an optimal valuation for your business, you must have a strategic M&A plan that includes a vision of how the business will provide the new owner with growth and profit that will increase its value beyond current financials.
4. Don't overlook the little things. Often a deal can be sunk by the little things that can happen during an M&A transaction. This could involve disputes during the process, misalignment of expectations or errors made during the process that create problems and ultimately kill the deal. Avoiding such difficulties requires experience and knowledge, without which unbelievable amounts of time and money can be wasted. Company performance can also often suffer as focus is diverted from core aspects of the business towards the M&A process. You need a mentor who can show you the way.
“Set sail with a mariner who has been shipwrecked many times, for he surely will know where the reefs are” - Daniel Defoe (1660-1731)
5. Be conscious of your “Known Unknowns.” When planning and implementing your exit strategy you need to be aware of any gaps in your knowledge - more specifically, gaps in your knowledge of the M&A process – and stay receptive to wider market knowledge.
As US Defence Secretary, Donald Rumsfeld said:
"We know there are known knowns: there are things we know we know. We also know there are known unknowns: that is to say, we know there are things we know we don't know. But there are also unknown unknowns — the ones we don't know we don't know." —
Donald Rumsfeld, US Defence Department briefing, Feb. 12, 2002
