How long does it take, and what are the steps in selling a business?
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 a competitive threat forces private business owners to sell.
Properly selling a business, to realize the most value, takes time and requires planning.
Milestones in the business sale process are outlined in the following chart.
|Preparation of the marketing materials (by the advisor in concert with the seller) and due diligence materials (by the seller, guided by advisor).||The documentation including a teaser, CIM and buyer list, while iterative with the seller, can be completed within four weeks.
Preparation of the due diligence materials is highly company dependent and can take from several weeks to several months.
|Engaging potential buyers and securing expressions of interest||Potentially to many parties; up to 2 months|
|Management meetings and supplemental information provisioning; securing and negotiating the final LOI.||With the top 3 to 5 parties; up to 2 months.|
|Due Diligence and drafting/negotiating the purchase and sale agreement.||With the final party; 45 to 60 days.|
7 to 9 months
Why so Long?
A sale process takes time because it is important to fully prepare before engaging in business sale discussions; rather than react to buyer information requests. Once information is shared or questions are answered, it is difficult to backtrack on inconsistent information or having strayed from your messaging theme. The preparation phase is the most important phase and, depending on systems in place and historical KPIs (Key Performance Indicators) tracked, it can take some work to get ready.
The next phase in the business sale process is what we call “in market” and is the marketing/communication phase of the process. Depending on the level of relationships of the broker and the time of year, this can take one to two months. Seasonal events that slow the process down include Christmas, summer holidays, new years in China, Easter in Europe, etc.
The last phase of a business sale is due diligence and closing (i.e. legals); which typically takes 60 days. Adding up these three main phases, you are looking at at least 4 months. A business sale is not a quick process.
Real-Life business sale example
The following is an actual example of a divestiture of a private company. In this case, the owner and 100% shareholder wanted to retire and was well prepared to initiate the process. The business was a very profitable software business operating out of one location servicing a diversified customer base. In short, an attractive acquisition opportunity supported by a motivated seller.
The engagement letter to commence the process was signed May 11th, a Wednesday. That Friday we met with the company for an information gathering and strategy session. One week later we met again, this time having completed a first draft of a potential buyer list, a Confidential Information Memorandum (CIM) and the teaser. First emails and calls to potential buyers commenced on may 26th; first books (i.e. CIMs) were sent on June 10th; and expressions of Interest (EOIs) were requested by June 30th.
Getting a sense of market interest and indicative value can be a fast process; in this case about seven weeks. Key contributors to a speedy process are client readiness and working as expeditiously as possible on the factors that the selling team can control. While only half-way through the process (with management presentations, requesting and negotiating LOIs and due diligence yet to come), the selling team will have a good sense of the market interest and whether a good deal is possible at this point in the process.
In some cases where: (a) for various reasons (seller health issues, business is in distress, etc.) the process cannot take 9 months, or, (b) where the best buyer is well known to the seller and knows the seller’s business, or (c), there is only one buyer, the seller can run an accelerated process.
In an accelerated process you can eliminate the EOI step and go straight to an LOI. The time-frame in this process could look as follows:
Prepare marketing materials – 2 weeks
Approach buyer(s) and facilitate initial due diligence – 1 month to LOI
LOI to close – 45 days for a total of 3 months
The key to an accelerated process is to have due diligence materials ready for review right from the start of the process. It is assumed that no third party due diligence is required to close in this case.
Time is of the essence in a business sale
Many things, both economic and company specific, can change during the sale time frame and it is strongly in the seller’s interest to complete the process as quickly as possible.
Recommended Further Reading
For more on the various stages of a sale process, see: What are the Steps in Selling a Business?
For more on transaction structure and terms, see: Form of Payment: Should You Accept an Earn-Out?