The Sale Process

The Sale Process

The business sale process has a number of distinct stages and typically takes 6 to 10 months to complete.

The Business Sale Process

Finding the Right Buyer

Finding the Right Buyer

There are strategic and financial buyers. The best buyer is the one that benefits the most from the purchase.

Finding the Right Buyer

Valuation

Valuation

A business's value is determined by market comparables as well as business specific analysis.

Valuation

earn-out

Form of Payment: Should You Accept an Earn-Out?

Consideration (i.e. amount to be paid) in private company acquisitions will usually include a sizable portion in cash (50 to 100%) and will often include an unsecured note, and/or an earn-out.  This is because: (i) the buyer does not have the amount of cash required for an all cash transaction (particularly in the case of…

How long does it take to sell a company

Business Sale Time-frame (with milestone chart)

Selling a business requires careful planning — everything from cleaning up the books and tax records to updating old operating systems—even ramping up marketing to accelerate sales to be able to command a higher asking price. All too often, an unexpected factor—an aging or ill owner, lack of interest in succession from adult children, or…

business due diligence

What is Due Diligence and What Does it Entail?

Due diligence is an investigation of a business or person prior to signing a contract.  More specific to a business sale, business due diligence is the process of verifying the representations made in the CIM and other marketing materials provided to the potential acquirer by the seller.  For example, in a CIM it may say…

Private Capital

Navigating the World of Private Capital

What is private capital?  Private capital includes all forms of long-term capital other than publicly traded equity or debt.  For the purpose of this overview, we are setting aside publicly traded common and preferred shares and publicly traded debt such as secured notes or high-yield (also called “junk”) bonds as well as crowd funding. Providers…

Raising Capital

Raising Capital? Prepare Well in Advance

Raising capital for a private company can be time consuming and expensive.  Capital may be in the form of a loan or an investment.  The lender/investor will seek a return on the capital in the form of interest, royalties, dividends, and/or capital gain.  Different forms of capital require different degrees of investment in time, due…

Winners Remorse

Buyers Remorse: Does the M&A Process Lead Buyers to Overpay?

Buyer’s remorse, also called winner’s remorse or winner’s curse is the realization that you have won an auction by paying more than anyone else was willing to pay.  Does winner’s remorse mean you have overpaid?  Not necessarily. When managing a company sale, there comes a point when interested parties are requested to provide non-binding expressions of…

working capital adjustment

Working Capital Adjustments in an Acquisition

Working capital adjustments are required when a going concern business is acquired by way of a share purchase.  This is the case for two main reasons: (i), because working capital changes every day as revenues are generated and supplier and payroll payments are made, and (ii), because working capital is easily manipulated in a material…

Revenue Quality

Revenue Quality: What Does it Really Mean?

Revenue quality is an area of focus for buyers and venture capital/private equity investors.  High revenue quality companies are valued higher than low quality revenue companies.  But what does this really mean and why is this? It is simply a question of risk.  High quality revenues reduce risk and therefore result in a higher valuation.…

Comparable Company Analysis

Valuation – Comparable Company Analysis vs DCF

There are market based valuation approaches such as examining public company trading multiples and comparable transaction analyses, and there are company specific cashflow and earnings based methodologies such as Discounted Cashflow (DCF) analysis.  In this post we review both market based approaches and company forecast analysis. Comparable Transaction Analysis Let’s start with the easier one…

M&A Reps and Warranties

Reps and Warranties: Common Issues and Resolutions

All Purchase and Sale agreements (“PSAs”) have sections called buyer and seller reps and warranties.  The intent of these sections is to disclose and describe any known issues in the business and to address how they will be dealt with.  It is generally accepted that any issues that come up post-sale, but that existed or…