The Winning M&A Advisor [Vol. 1, Issue 4]
Welcome to the 4th issue of the Winning M&A Advisor, the Axial publication that anonymously unpacks data, fees, and terms…
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When we surveyed Axial’s Investment Banking membership on the topic of exit preparation, we asked a wide range of questions with the hope of distilling the best tips and insights for exit-curious business owners. 66% of the surveyed Investment Bankers said that less than 1/4 of sellers they work with are prepared to sell before hiring them.
Today’s article focuses on what business owners should know prior to kicking off an engagement and the steps they can take to better prepare for the transaction process.
This is issue 4 of a 5-part series featuring the Investment Bank survey results. The Axial members below are quoted in today’s feature.
What is the most important thing a seller can do to prepare for a transaction?
The responses to this question produced a breadth of advice, with a few Investment Bankers even commenting on the challenge of pinpointing one specific thing. However, there were four consistent themes among the answers.
| What is the most important thing a seller can do to prepare for a transaction? |
|---|
| Have a real team of people underneath them that can operate the business in their absence. Ensure financials are GAAP-compliant and ready for scrutiny; if they aren't, have a Quality of Earnings done pre-marketing process and be ready for due diligence. - Bo Stump, Stump & Company |
| Understand how companies are valued and how transactions are structured. - Akash Taneja, Momentum Advisory Partners |
| Have a solid runway ahead of them for revenue growth. Any hiccup in revenues that occurs during negotiations or diligence often undermines the process since it adds to the buyers' anxiety. - William McDonald, McDonald Dalton Capital Partners |
| The best thing that a seller can do is to make themselves redundant in the day-to-day operation of the business. - Chris Perfect, Concept and Perspective |
| Move away from owner-operator. Have the leadership team in place. Understand all the numbers (debts, working capital, cash, etc.) in combination with valuation. Develop your personal waterfall and think through what your true number is. - Matt Slawson, Next Level |
| Engage an advisor in advance to implement the best plan and practices for the best results for the future. Audit financials and/or conduct a sell-side quality of earnings analysis. - Philip Rodriguez, Statesman Corporate Finance |
| Know your true valuation ahead of time and be transparent and prepared to answer tough questions. - Warren Rose, Groce, Rose & Moore, LLC |
| Engage Professional Advisors, Seek guidance from professionals, such as accountants, lawyers, and business brokers, who specialize in transactions. They can help navigate legal and financial complexities and assist in finding the right buyers. - Ilian Obregon, Astor Walker & Co. |
| Build a full management team that renders the ownership redundant and get that management team to commit to remaining post-transaction. - Jeffrey Rich, Touchstone Advisors |
Looking to exit your business? Explore Axial’s Advisor Finder
What would you say the most unexpected hurdles are for sellers in a transaction?
For most business owners, exiting their business is a once-in-a-lifetime event, and even with thorough preparation, it is an inherently complex process. Below is a selection of challenges these Investment Bankers have witnessed their clients experience.
| What would you say the most unexpected hurdles are for sellers in a transaction? |
|---|
| Valuation expectations and the potential need for seller financing to get the deal done. - Jim Myers, Hanna Business Advisors, Ltd |
| Sellers frequently underestimate the significant time investment necessary to successfully navigate the sale of their business. - Patrick O'Connell, O'Connell Advisory Group LLC |
| Understanding working capital and how that is "sold" with the business. - Keith Wegen, Flatirons Capital Advisors |
| Understanding their fully loaded adjusted EBITDA and negotiating all of the non-valuation deal points at the time of LOI. - Jay Jung, Embarc Advisors LLC |
| Maintaining strong growth during the exit process, while also working with a banker and buyers. - Sally Anne Hughes, Hughes Klaiber |
| How physically and emotionally draining it is. - Drew Langford, Trailhead Partners |
| Developing a strong outside-in perspective of their business from an investor perspective. - Patricia Stensrud, Avalon Securities Ltd. |
| Structured offers. They tend to think offers will be all cash at closing. - Mark Mroczkowski, Chapman Associates |
| Adjustments to sellers' understanding of the deal agreed upon due to language in Purchase Agreements. - Ron Hodge, Westbury Group |
Additional Resources
Axial launched Exit Ready with the goal of educating exit-minded business owners by curating the best content, tips, and guides. Below are a few resources from the newsletter that we hope can aid in better preparation for the transaction process.
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