Monday, July 2, 2012

Investment Banking Blog Series – Sell Side M&A Process

Common Questions Related to the Sell-Side M&A Process (Part 4 of 4)
By: Cyril Jones & Gregory Ficklin)

As investment bankers, RKJ Partners interacts daily with business owners and understands many of their concerns.  In our latest blog installment, we address common questions of business owners relating to the sell side M&A process.

How important is confidentiality and how can it be maintained during the process?
It is imperative to maintain confidentiality throughout the sale process and to take measures that will guard against competitors, employees, vendors and customers learning of an impending sale.  These measures include well written Confidentiality and Non-Disclosure Agreements; generalized, nondescript marketing and educational documents, as well as thorough buyer identification and qualification procedures.  The use of an investment banking firm greatly enhances the probability of maintaining confidentiality throughout the process by providing a communication layer outside of the company and managing buyer access to information.  It is virtually impossible for a business owner to maintain confidentiality when selling independently given the natural inclination to share information and speak freely about the business.  Information should be provided in stages, and more sensitive matters do not need to be shared with potential buyers until well advanced in the process.  Experienced buyers often attempt to exploit the absence of a qualified advisor by requesting more information than they should be entitled to see without proper qualification.

How long will it take to sell my business?
The time required to market and sell a business varies greatly from business to business. In general, it can take from 3 to 18 months to complete a business sale, with the most common range of 6 to 12 months.  The pace of a transaction is influenced by a variety of factors including market conditions; desired transaction structure; use of bank financing; sales trends; available competing opportunities; business size; and cooperation of professionals, to name a few.  The most important strategy for maximizing the probability of closing a sale within the target time frame is to work with multiple interested buyers until a deal is closed.  This insures that you will not need to start the process over again should negotiations terminate for any reason with a lead acquirer.  Deals can derail for many reasons that are outside of your control; therefore it is critical to keep alternative options open and active.

Should sellers negotiate with more than one buyer simultaneously?  
When there is one potential acquirer, the buyer is in control.  However, when there are multiple potential buyers the seller is in control.  Having multiple available options will maximize the chance of negotiating a favorable sale, while making you less dependent on any one potential acquirer.  Working with an investment banker better enables a seller to actively negotiate with numerous buyers independently.  The existence of a fall-back position avoids starting the process over should a deal fall through for any reason.  Experienced buyers are less likely to attempt to take advantage of a situation if they perceive that there are additional interested parties.

How many years of historical financials will a buyer typically want to review?
Three years of historical financial information should be sufficient for potential acquirers to formulate an opinion of value and a comfort level with the business.  In today’s fast changing world, statements more than three years old are not very relevant to the operations of the current ongoing business.  In addition to historical information, year-to-date or interim financial statements are required.  It may be advantageous to prepare a projected income statement for the upcoming period as well.  You should also be prepared to discuss any dramatic swings (up or down) in sales, profit margins or expenses.

What characteristics should seller try to identify in an investment banking firm?
It is important to have a comfort level and work with an investment banker whom you can trust to achieve your sale objectives.  A professional firm should provide a high level of attention, professionalism, service and expertise to your assignment, regardless of the size of your deal.  There is a wide array of firms that claim to be M&A Intermediaries.  Locally, there are commercial real estate firms that are ill equipped to handle the complexities of business sales, or traditional business brokers that typically handle the sale of retail "mom and pop" businesses.  On a national level, some intermediaries market their services through seminars.  A true professional investment banking firm will provide unparalleled merger and acquisition representation, while maintaining a competitive success based fee structure that aligns their financial goals with those of the business owner.

RKJ Partners, LLC ( Cyril Jones and Gregory Ficklin are Managing Partners with RKJ Partners, LLC. RKJ is a minority-owned, Atlanta, GA based investment banking firm formed to assist lower middle market growth companies in execute transactions between $2MM and $75MM. Specifically, RKJ provides buy-side and sell side M&A advisory services, capital raising services and strategic advisory services.


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