Myth #1: The obvious buyer is not always the right buyer
Keep your options open
One of the most common deal myths in M&A is that the “usual suspects” will always be the groups that bid the most for your business. While it is of course smart to include these groups in your auction process, we have seen many instances in which obvious competitors come in with a valuation in the middle of the pack. Conversely, it is not uncommon for a less obvious bidder to surprise you with a willingness to write the biggest check. The following chart illustrates real valuation ranges we have received from bidders on various deals. For each of the deals represented below, the highest bid received was from outlier bidders, while many of the bidders in the median to lower groupings were the large industry competitors:
Myth #2: You can handle selling your business on your own
Hire a wolfpack
As an entrepreneur, you have likely been conducting negotiations with suppliers, customers, and distributors for years or, in some cases, decades. Given you are in a position to sell your business for a large sum of money, it is a fair assumption that you have been highly successful in these negotiations. With that said, selling your company is likely the most important and complex deal you will ever close. Consequently, the value that can be left on the table without the support of an experienced M&A team can be substantial.
The fees associated with a deal team of investment bankers, attorneys, and accountants can seem exorbitant at first. With that said, we have yet to hear a client express that the value of their deal team didn’t pay for itself by the end of the process (often times many times over). Just as your surgeon, pilot, or carpenter could tell you, some things in life are worth going with the pros!
Myth #3: A signed LOI = a done deal
Hold off on buying that plane!
While signing an LOI with your selected buyer is a significant step in the process of closing a deal, it is far from the finish line. The next 30-90 (or in some cases, more) days of due diligence will likely be the most challenging and stressful stage of the deal process for you and your management team. Your deal team will help you navigate the emotional peaks and valleys, but remember that this is usually the stage where we say that most deals “die” three times.
It is important to remember that your leverage is the highest during the marketing and bidder selection stage. Inversely, the seller’s leverage falls precipitously the minute the LOI is signed. The bidder that had previously been wooing you in the courting stage of management calls and meetings is now doing everything they can to ensure they really want to marry your business. As you can probably imagine, this process can be painful and messy at times. Sometimes to the point that it can ultimately kill a deal. For this reason, we can’t overstate the importance of optimizing a deal’s certainly of close.
Myth #4: You can time the market
Focus on what you can control
One of the most common questions we get from our clients is “When should I take my company to market?” Our unsatisfactory answer to this question is always that “it depends”. While not the most gratifying answer for our clients, it is the truth. We tell them that the answer to this question hinges on evaluating timing through three different lenses:
The common M&A myths outlined in this article are just the tip of the iceberg when it comes to deal fallacies. The most valuable advice we can offer as you start to think about selling your company is to prepare yourself as much as possible using experienced M&A professionals as a primary resource.
Class VI Securities, LLC