Selling your business could be the most significant financial event in your life. For most business owners, their company is their largest asset, and most successful sales are going to provide a large liquidity jackpot.
But success isn’t assured, and plenty can go wrong on the way to the finish line. Experts disagree, but some sources point to a 30% failure rate in M&A deals. And even if you do get a deal across the line, achieving the exit you deserve is different from just getting out at any cost. In my experience, the sellers who achieve their ideal outcomes are the ones who prioritize the sale from day one, long before they actually close.
So, what does it actually take to find the right buyer, set and negotiate terms, and close a successful deal?
Every deal is different because every business and seller-buyer relationship is different, but there are some commonalities in the M&A processes that meet and exceed sellers’ goals: getting to the right level of preparation, curating a process that works for what the seller wants, making thoughtful and well-reasoned decisions throughout, and working with the right partners to provide guidance and identify and ward off potential disruptions.
Below, I’ll share the strategies and tactics that are the biggest help to owners as they negotiate valuations and terms. These are the things I’ve seen work across hundreds of transactions, and they could work to get you to a satisfying closing day.
Gather your team
The best M&A outcomes tend to happen when an owner hires an experienced team. I’m in the mergers and acquisitions business, so this will seem self-interested, but it’s absolutely true!
In the middle market, finding the right team means first interviewing and then selecting a qualified investment bank to help you sell. A good investment bank brings a much higher level of market access, process discipline, and negotiating leverage than most business owners can achieve on their own. The bankers have been down this road many times and know where to focus your energy and where things can go wrong. Look for a bank with genuine transaction experience in your revenue range, not just familiarity with your industry.
Your bankers can also recommend how to fill out the rest of your team:
- An experienced M&A attorney (not your corporate counsel!) to review due diligence documents and contracts and negotiate the purchase agreement
- An accountant to prepare your financial statements and a separate firm to do a quality of earnings report that gives a clear view of your financials
- A personal wealth advisor to help you prepare for your new liquidity
These professionals can guide you in their specific lines of expertise and typically end up paying for themselves many times over.
Forecast like your sale depends on it (because it does)
Business buyers are paying for a bright, profitable future. Your ability to model and defend forward projections could be what separates a deal that closes at a premium valuation from one that doesn’t close at all.
Forecasting ability is one of the most common gaps my team and I have identified with our clients over the years, across industries and verticals. It helps to build your forecasting skill well in advance of going to market, which includes clear presentation. Nobody should be scrambling to explain their numbers during due diligence, when any problem can add time and stress to a transaction.
In addition, you should set realistic expectations and make sure you hit your numbers. It’s tempting to aim too high, but hitting your numbers shows that you have the discipline to run your business in accordance with your strong financial models. Let me tell you, there are few things more damaging to a seller than missing a forecast during the due diligence period. Even one missed month can be a deal killer.
Run a competitive auction process
One of the chief reasons to hire an M&A team is to help with buyer outreach—many sellers don’t know how to find potential buyers, and why should they? For years, most owners have been too busy running a business, not learning how to sell it.
A capable investment bank will structure a buyer auction that forces bidders to compete, which is the single most reliable mechanism for maximizing valuation. After all, a single buyer at the table has all the power and leverage.
Your advisors should be running a broad, controlled outreach to strategic and financial buyers simultaneously, not shopping your company one call at a time. Besides driving up the sale price, competitive tension also gives you leverage on terms, timeline, and deal structure throughout the process, as well as increasing the likelihood of closing—buyers know that there’s competition out there who will happily scoop up your asset if they don’t pounce.
Calibrate your business value expectations
Your M&A advisory team should conduct real market outreach before you make your debut, which you can use to discover what buyers will actually pay (not what you hope to receive).
Keep in mind that a letter of intent from a prospective buyer isn’t the final say—business valuations can always revise downward during the process. Be a flexible partner during negotiations while keeping a steady spine—not every dollar in the LOI is worth fighting for, and not every issue is worth killing the deal over.
Also keep in mind that sale price isn’t the only consideration when it comes to how much you’ll earn from a deal. Don’t ignore structures that promise earnouts or rollover equity, which can pay off in a few years of the continued good performance that you’re promising.
Having all this intelligence beforehand can help you set expectations so you’re not tempted to back out if the deal is more complex than the optimistic back-of-the-envelope calculation you’d hoped for.
Vet buyers as carefully as they vet you
You can improve your odds of closing a transaction if you know who you’re dealing with. A high bid from an undercapitalized or inexperienced buyer isn’t necessarily a win, because financing failures later in the process can waste months of progress and cost you real money instead of earning it.
Your advisors should qualify buyers early, asking questions like:
- Who is the equity source?
- What’s their debt commitment?
- Have they closed deals of this size before? How many and how recently?
The best buyer isn’t always the highest bidder; sometimes it’s the one most likely to close the deal.
Be an open book with your team
Due diligence is much more rigorous and extensive than many owners realize, because buyers want to capture the complete truth before opening their wallets. Any problems—whether compliance-related, legal, financial, or anything else—will come out at an inopportune time.
That’s why transparency with your team is non-negotiable. Trust me, they’ve heard it all before. Skeletons discovered in due diligence are far more damaging to a deal’s likelihood of success than skeletons disclosed during bid negotiation, when you still have leverage. And if you discuss them with your team early enough, you can take steps to turn some things around and mitigate the harm entirely.
Honesty with your advisors is the foundation of a successful process.
Get ready for transaction success
How do you see a business sale through to the end? By treating it with the same care and attention you dedicate to building and running your company.
This includes surrounding yourself with experienced advisors and approaching the transaction as an informed partner rather than a reactive seller. If you’re prepared to make the decisions I discussed above, then you’re well on your way to running a disciplined process—the kind of process that’s most likely to hit the finish line running!
AUTHORED BY:
Chris Younger | CEO | Class VI Securities, LLC | Class VI Family Office, LLC
Chris co-founded Class VI in 2005 with a mission to Enable the Entrepreneurial Spirit. Sharing a passion for what entrepreneurs mean to our community, Chris and his business partner David Tolson felt they could do a better job for business owners and have had a great time helping clients ever since.
Prior to Class VI, Chris spent more than 20 years gaining experience in executive management, marketing, sales, law, and mergers and acquisitions.