Posted: February 01, 2012
New Way Out: Exit strategies for owners
ACG Special SectionBy Nora Caley
There's a lot more to selling a business than signing papers and getting a big check. Chris Younger, managing director of CapitalValue Advisors in Englewood, says business owners are often surprised at the steps they must take before selling a company.
"They may not fully appreciate how much due diligence the buyer is going to do. That can require a certain amount of detail, investigation and document work," he says.
First, Younger says, determine what you want to accomplish with the sale of your business. "Without a goal or objective, the process is likely to yield less satisfactory results," he says.
The second step is to determine the value of the business. Some business owners overestimate this value, Younger says, because they can't view it objectively. If there is a gap between what you'd hoped was the value, and what the buyer and investment banker estimate is the current value of the business, then assess the business - or, better, get a third party to do it - to find areas where you can reduce risk and increase value.
Then assemble your team of attorney, accountant and investment banker. "They can all help you think more strategically about the sale process, and prepare you and your business so that the likelihood that your transaction closes goes up."
Younger says the fastest sale he's handled took 25 days, but most take about four or five months. Sometimes the delay happens when multiple owners have varying goals. "You do need to have an open, candid discussion to really understand what those different goals are," he says.
Thor Culverhouse found that out when he sold his database and application automation company, Stratavia, to the technology giant HP in 2010. "It was more time consuming that you would ever imagine," he says. "I thought in a couple of months we would be liquid, but that wasn't the case."
Selling a business is not like selling your home, Culverhouse says, because the home sale has certain deadlines and the buyer is presumably buying only one house. "HP was in the process of buying other companies," he says. "We had no idea. You have to assume you're not the only person they're talking to."
At the same time, Culverhouse had to communicate with the other investors of Stratavia, including the founder and three venture capitalists. "They have millions of dollars invested in it, they've all sold lots of companies, and they're going to come to the party saying, ‘You've got to do it this way,'" he says.
Younger notes that having multiple owners can give the company an advantage. "A company that is heavily reliant on the owner will typically sell for a lot less, if at all, than a company that has a deep, experienced and long-tenured team," he says. "This is because having a solid team reduces the risk of the business for a new owner."
Culverhouse, who recently launched another business, willbeHired, agrees that it helps to have a good investment banker on your side, especially one who has sold your type of company in the past. He adds that it also helped that his background was in sales.
"I really tried to understand the buyer persona," he says. "It wasn't just me trying to get the highest price. It was, Why did HP want to buy us? What value did they see?"