By Scott Bushkie
If you’re one of the several million baby boomers thinking about selling their company in the near future, you might be wondering how long the whole process will take and what to expect along the way.
In a nutshell, if you have a focused advisor who is actually working the deal, expect two months of initial prep, 30 to 90 days for marketing, one month for negotiations, and roughly 60 days to handle due diligence, financing and legal. Here’s the process in more detail:
Evaluation. As you begin to work with an M&A firm, your first step is to make sure your price expectations match what the market could actually bear. Your advisor will need about two to three weeks to recast your financials and do all the necessary research to put together an estimate of value.
If your expectations or financial needs don’t match up with a professional estimate, you should probably postpone a sale (or re-set your expectations). Ask your advisor how to improve your business value for sale at a later time.
Prep. Once you and your advisor agree on a target value, you’ll sign an engagement contract. For the next four to six weeks, your advisor will be putting together the marketing book (typically referred to as a Confidential Information Memorandum) and developing buyer lists.
You’ll be asked to provide a lot of information during this stage. The M&A team will interview you to understand your growth story and future potential. The goal is to create a document that will put your business in the best possible light while remaining informative and credible.
You’ll also be asked to talk about what you’re looking for in terms of a buyer and a future relationship with the business. Are you looking to keep some equity? Would you consider an employment contract? How concerned are you about protecting employee jobs? Your answers will help your advisor shape the target buyer list.
Marketing. Timing for the marketing phase will be your biggest unknown. Depending on the market and the nature of your business, this could typically take anywhere from 30 to 60 days on the short side to a more common time frame of 90 to 120 days on the long side.
During this phase, your advisor will be contacting potential buyers from the list you’ve already reviewed. When talking to potential buyers, your advisor will be explaining the opportunity in very general terms, prequalifying their capability to complete a deal, and getting signed confidentiality agreements before releasing any specifics.
For larger deals, which typically generate a lot of interest, we can control the marketing timeline with specific deadlines to achieve multiple offers for you to compare all at once. With smaller deals, we’re more often addressing buyers individually, as they express interest. We’re still trying to usher multiple offers to the table at the same time, but it’s a less uniform process.
Negotiations. Once the indications of interest are in, you’ll work with your advisor to narrow down the top candidates, ideally three to five buyers. Then those parties will meet with you and tour the facility (after hours, when reasonable, to maintain confidentiality).
These visits and negotiations may take a couple of weeks, depending on how many buyers are involved. Then you’ll choose the one buyer who brings the best overall value (not always measured in dollars), and move forward to closing.
Due Diligence/Closing. At this point, you have a signed letter of intent with one buyer and you’re working through financing and due diligence. A smaller business can close in 45 to 60 days, but a buyer will typically want 90 to 120 days for larger deals.
The sale isn’t complete, of course, until the final paperwork is signed. Any unexpected surprises can kick you back to the negotiation, marketing, or (worst case scenario) evaluation stages.
As a general rule, larger businesses will move through the marketing stage faster but will take longer in prep and final due diligence. Our shortest record here at Cornerstone is one month and 24 days from signed engagement to closing. Our longest sale, however, took two years, six months, and 28 days (the business was directly tied to commodity prices—which dropped the week after we went to market).
One final note: “Start” the sale process the same day you buy your company. Plan ahead so you can make informed decisions about business growth. Then, three to five years before you actually intend to sell, talk to an M&A advisor who will help you make the final preparations to increase value.