You may have decided it’s time to sell, but before you begin the M&A process, you need to take a good, hard look at what you plan to put on the block. Just because you’re ready doesn’t mean buyers will be interested — particularly if this is the first time you’ve thought about preparing your business for sale. Prospective buyers won’t just scrutinize your business, but they’ll also compare it to other opportunities in the marketplace.
Asking Tough Questions
With the help of your M&A advisors, go over your company with a fine-tooth comb, just as a buyer will during the due diligence stage. Evaluate everything from debt levels to personnel to customer relationships and address any issues that are likely to give potential buyers pause, such as too much business concentration in only a few customers.
As an owner, you probably value your business and its sale prospects highly. But to understand its actual market value, you need to think like a buyer and ask the kinds of questions buyers will. These include:
(Q) Is it Financially Sound?
Is your balance sheet strong relative to those of your competitors, particularly when it comes to debt? Do you have good growth prospects or has your company’s growth plateaued? If buyers sense financial distress or little growth opportunity, they’ll undervalue your business or, more likely, move on.
(Q) Is it Unique?
Identify what gives you a leg up on the competition. Do you make a niche product essential to the business of other manufacturers? Do you own a valuable patent, trademark or brand? Do you have an exclusive client or customer list? Such assets can increase your company’s value in the eyes of the right buyer.
(Q) Is it an Easy Fit?
Buyers look for businesses with strong leaders, similar corporate cultures and the prospect of smooth integration. Do you have an experienced management team capable of easing the company through a merger transition? Have you provided incentives for good employees to stay?
Before entering the market, streamline your company’s operations so that buyers can focus on your essential offerings and not be distracted by peripheral issues. Begin at the office level, ensuring your facilities are clean, modern and professional looking. Next, make sure key business documents are well organized and easily accessible, including financial statements, which need to be accurate, up-to-date and easy to review.
Streamline at the organizational level as well. Try to resolve or minimize potential snags such as:
- Ongoing or pending lawsuits
- HR issues
- Major outstanding insurance claims
- Ownership of intellectual property
You may also need to separate your real estate holdings from your business. Some buyers prefer to buy real estate separately from the rest of the business so they have the option of easily selling it when the transaction closes.