In the world of mergers and acquisitions, ignorance is not bliss.
What you don’t know can and will hurt you when it comes time to sell your business.
Do you believe that the skills that build your business are the same ones you need to sell it?
If you said “yes,” you’re not alone. In the world of mergers and acquisitions, most business owners have the same belief.
The harsh reality is that skills that built your business are different than the ones needed to sell it.
Who am I, and how do I know?
I was the kid who started his eLearning company right out of school with no money, team, or experience. The truth is I had no business being in business, and the results showed.
My grit and passion kept me in the game long enough to experience success. With success came an unsolicited offer based on 7-figures and 3-times EBITDA.
Looking back now, I realize that the buyer was a wolf in sheep’s clothing. Something didn’t feel right.
When I said “no” to the unsolicited offer, I said “yes” to mastering the art and science of selling a business.
I spent millions of dollars and years of my time in the world of mergers and acquisitions.
What I learned shocked me to the core as the system is set up against business owners.
A few years later, I said “yes” to a different buyer with a 9-figure offer based on 13-times EBITDA.
I increased my business value 10X with the same company, service, and team.
What did I do and how did I do it?
Accounting numbers are the beginning, not the end, of business valuation – Warren Buffett
In the world of mergers and acquisitions, your business value is subjective at the best of times.
Yes, you read that right. Your business value is nothing more than an opinion and anything but a fact.
Your future buyer will tell you that your business value is nothing more than a formula in a spreadsheet. You may even hear the same from your investment banker.
Whatever you do, don’t believe this common myth.
Read and prosper from “Do You Know How To Increase The Value Of Your Business?”
In my experience, mergers and acquisitions is as much an art as it is science. There is no one-formula-fits-all when it comes to your business value.
How is your business value determined in the world of mergers and acquisitions?
The answer is, it depends.
Your company may have a higher value depending on the type of buyer. As the saying goes, beauty is in the eye of the beholder. It’s no different when it comes to strategic, financial, and family office buyers.
Business value is also affected by the valuations your competitors received. The industry you’re in also plays a significant role in setting expectations.
Believe it or not, your business value is also dependant on how well you perform.
Mergers and acquisitions are notorious for one thing that can make or break your deal.
Do you know what it is?
In mergers and acquisitions, all roads lead to due diligence – Jeffrey Feldberg
Do you know what causes most mergers and acquisitions to fail?
Read and prosper from “The Due Diligence Mindset You Need To Win.”
Mergers and acquisitions are high stakes for everyone involved, especially your future buyer.
Buyers will spend hundreds of thousands of dollars on due diligence.
What are buyers looking for in due diligence?
Confidence and hope.
Confidence from the fact-checking everything you say and present about your company.
Hope from the picture you paint of your company having a bright future.
In mergers and acquisitions, I recommend a little known strategy for due diligence. The time and money you spend pursuing my strategy is a rounding error compared to what you’ll gain.
What’s the strategy.
Before you start your exit process, create your virtual data room, and do your due diligence.
You’ll find the so-called skeletons in your closet before anyone else.
Items you’ll find may include:
In mergers and acquisitions, you have one chance to make a great impression. The impression you make with your investment banker and future buyer affects value.
When you show up prepared and with a clean slate, you make a great impression, and your value goes up.
You’ll also be the rare business owner in the world of acquisitions who is ready.
Would you like to know how you can speed up your exit and keep buyers on their best behavior?
Control your own destiny or someone else will – Jack Welch
An auction in mergers and acquisitions is what rocket fuel is for an engine.
When you create an auction for the sale of your business, you do two powerful things:
Buyers, like yourself, are competitive and want to win.
The mere presence of an auction gives social proof to all the buyers that your business is desirable.
When you don’t have an auction, it’s common for buyers to take their time and provide a lower valuation. Without competition, your future buyer will do everything to get a better price.
You don’t know what you don’t know, and your buyer knows this.
An auction gives choice and power. Your mergers and acquisitions deal table now has many buyers.
The fear of losing for buyers is an incentive to shorten the deal process and increase your value.
After all, if you don’t like what you’re seeing with one buyer, you’ll move on to the next one.
In mergers and acquisitions, the choice amongst buyers is not a luxury. It’s a necessity.
When you have a choice, you can perform your due diligence on the buyers to learn their modus operandi. Through your investment banker, you can dictate the terms you want, or don’t want, in the letter of intent.
Buyers will often follow your guidance, knowing that if they don’t, you’ll move on.
Smart and successful sellers use auctions, and so should you.
Do you know the other factor that causes many mergers and acquisitions to fail?
One man can be a crucial ingredient on a team, but one man cannot make a team – Kareem Abdul-Jabbar
In mergers and acquisitions, you’re only as good as your exit team.
Read and prosper from “Assembling Your Exit Team? How To Crush It And Win.”
Show me your exit team, and I’ll tell you the future, at least when it comes to your exit.
Most exit teams consist of:
You may be asking why clients and what’s a Chief Exit Advisor?
For your buyer, conversations with your clients will solidify the deal at best, or lose the deal at worst.
Your Chief Exit Advisor has a track record of success in mergers and acquisitions.
Your Chief Exit Advisor is loyal to you and you alone and may not even sit at the deal table.
The skills that built your business are not the same ones to sell it. You don’t know what you don’t know, but your Chief Exit Advisor does know.
Ready for a shocking truth?
Unless you do specific things for your exit team members, you’re likely not their priority. This topic is an article to itself. Your Chief Exit Advisor ensures your exit team’s motivation aligns with yours.
Look to your Chief Exit Advisor to help select your exit team members.
Your exit team must be excel in the area of mergers and acquisitions. Your deal will suffer if your exit team is slow to respond, focuses on the wrong issues, or makes mistakes.
Speaking of mistakes, do you know the one mistake sellers make that can cost them the deal?
Great is the art of beginning, but greater is the art of ending – Henry Wadsworth Longfellow
In mergers and acquisitions, the Letter of Intent (LOI) is the start and not the end of the process.
Don’t fall into the trap of believing that the LOI is the deal itself.
Read and prosper from “Exiting Your Company? Avoid These 5 Costly And Stupid Mistakes.”
Your future buyer is smart, sophisticated, and experienced. Expect your future buyer to do everything to gain the upper hand from the start.
Once you sign the LOI, you immediately lose leverage. The LOI gives the buyer an exclusivity period where you cannot speak with other buyers.
Before putting pen to paper on the LOI there are a few key things you must do to protect yourself.
For starters, ensure the LOI, is specific on the price. While you’re at it, have the buyer disclose the source of the funds to close the deal.
The buyer may have the money in the bank, or instead, plans to get outside financing. Outside financing adds risk to your deal and costs for the buyer. Know what you’re dealing with upfront.
Find out if the buyer plans to buy your business as shares or an asset. The structure of the deal may have significant tax implications for you.
The LOI should have specific terms of an earnout and the amount and time of an escrow. As important, have the buyer disclose if employees and management are staying on or fired.
In mergers and acquisitions, ignorance is not bliss, especially with an LOI.
The success of your deal and your future depends on the details and quality of the LOI. Do the smart thing and have the LOI as detailed as possible.
In mergers and acquisitions, the skills that built your business are not the same ones to sell it.
You have one chance to sell your business, and you better make it count.
What you don’t know in mergers and acquisitions can and will hurt you in your exit process.
How do I know?
My exit journey ended with a 9-figure exit based on 13-times EBITDA. But my exit journey did not start this way.
Instead, my exit journey started with an unsolicited offer from a different buyer. The buyer, more like a wolf in sheep’s clothing, presented a 7-figures offer based on three times EBITDA.
Something didn’t feel right. I said “no” to the offer and “yes” to mastering the art and science of selling a business. As a result, I spent millions of dollars and years of experience.
What I learned shocked me to the core. The system is set up against us business owners.
Today my mission is to level the playing field for business owners when exiting.
What do you do, and where do you start?
Start with the first strategy I’ve revealed and master it before moving on to the next one. Do this for all five strategies.
You can do it. I know you can.
Here’s to you and your success.
Your Biggest Raving Fan,