Avoiding Transaction Death by Selecting the Right M&A Intermediary

Aug 27, 2019

The sale of a business is a sophisticated, nuanced process requiring knowledge, experience, and a high professional skill set.  A properly facilitated transaction involving the sale of a privately held company will achieve the maximum possible market value for the business, mitigate post transaction risk financially & legally, and result in the lowest possible tax liability for ownership after the sale is completed. Professionally, the best mergers & acquisitions intermediaries have been metaphorically compared with heart surgeons in the business community and the best business brokerage firms with top ranked hospitals.  I believe that this comparison is appropriate because like a highly skilled doctor, a highly skilled business broker will possess academic knowledge, experience gained from progressive execution of successful projects over an extended period of time, a support infrastructure of peers, tools, and resources, and the ability & talent to successfully complete projects without losing the patient.   Similar to heart surgery, especially in a retirement sale of a business, the opportunity only exists to perform the operation once with the ramifications of a lack of attention to detail being future bleeding (Inappropriately addressed legal liabilities trailing the transaction or excessive tax burden post sale) or an unsatisfactory final outcome (value left on the table financially).

The selection of a heart surgeon for triple bypass surgery should not be a decision made based on cost. A party desiring the best possible end result from heart surgery wants the most experienced, knowledgeable, highly skilled doctor wielding the scalpel in the operating room while they are under anaesthesia. The same should be true when selling a business. A business owner should seek the most knowledgeable, experienced, highly skilled professional intermediary to sell their business.  The following are five business sale elements where knowledge, experience, and ability can impact the outcome of a transaction.

Sale Price – Two components exist related to achieving the maximum possible market value for a privately held company.   The first component is that a business needs to be properly valued when it enters the market.  The proper valuation of a privately held company requires accounting, financial investment, and market knowledge combined with the ability to mesh the components to arrive at an appropriate value.  The second component is that the value needs to be justified in the marketplace. If a value cannot be justified it is just an arbitrary number and the salesperson presenting the figure is diminished from an expert to a customer service representative presenting merchandise on the shelf they had no role in pricing.   Business values traditionally need to be justified three separate times in the sale process.  First to the potential buyer, second to their accounting professional support, and third to lenders and/or investors and their support personnel, including often certified business appraisers. A business broker should be selected that can persuasively justify the business value to all necessary parties. The best business brokerage firms and brokers have the ability to value businesses “in house”.  The advantage of having the business broker value a business they will also sell is that the valuation process requires them to intimately assess a business from a buyer’s perpective. This assessment process educates and prepares a business broker for selling the business.  The best salespeople comprehensively know their products.   The ability to field questions intelligently and highlight company attributes translates into higher business sale prices.

Marketing – To achieve the best possible sale value for a business, a marketplace for the company needs to be created.  The marketplace for the sale of a business is complicated by the fact that it frequently needs to be created in an environment of confidentiality.  Knowledge, experience, systems, and ability can greatly influence the quality of the marketplace created for selling a business and the ability to maintain confidentiality throughout the sale process.  The quality of the marketplace can be impacted by the resources deployed, the venues & strategies utilized, and the broker’s written communication ability.

Sales & Negotiations – Businesses in the main street & middle markets sell for six, seven, and eight figures.   Acquisitions made in this marketplace are not impulse decisions.  They are long time horizon transactions by intelligent, thoughtful parties that require persuasive communication by an intermediary, verbally and in writing, in person, on the telephone, and by email.  The sale process also requires development of rapport between the parties and their professional advisers, strong listening, and problem-solving skills.  A quality, appropriately priced & marketed business will attract interested buyers, however getting the parties to “yes” takes attention to detail, knowledge, experience, and skill.  An easy way to assess the skill of a business broker as an intermediary is to look at their method of compensation.  M&A intermediaries that are willing to be paid on performance who have been in the profession for an extended period of time likely have a track record of successfully completing their projects.  Business brokers who look for administrative fees & retainers up front are likely hedging their bets on their abilities and insuring that their business model is funded regardless of performance.

Resources – The difference between success & failure in the operating room often does not depend on the skill of the surgeon.  It depends on their anatomical, medical, equipment, and pharmaceutical knowledge and the ability to consult with other doctors.  Deals, even with a wiling & able buyer & seller, can die on the operating table.  The knowledge of a business broker and their ability to consult with and utilize other professionals can be instrumental in successfully navigating a transaction from initial agreement to closing.   Many times in my twenty-five years as a mergers & acquisitions intermediary, I have utilized knowledge gained from listening & learning from top attorneys & accountants in the region in prior transactions to problem solve through deal issues in current transactions.  Countless other times, it has been the professionals I brought into the transaction (e.g., bankers to fund the deal when another bank has rejected the loan, insurance brokers that found bonds or life insurance policies necessary for transactions, or environmental remediation firms to address contamination in real estate) that have allowed parties to “move the chains” and get the deal into the endzone.  A simple method of assessing the resource network available to a business broker as an entrepreneur is to review their LinkedIn profile.  Many connections in an intermediary’s network likely means they have resources in the business community and have an established record of performance.

Deal Management – Achieving the highest possible market value for a business in the marketplace is one barometer for assessing business broker performance.  Another is their ability to manage a deal and get it closed.  Transactions can get bogged down in “paralysis by analysis” during due diligence and expensive, time consuming legal negotiations.  Neither of these situations are positive for a transaction and both increase the probability of deal failure.  One responsibility of a business sale intermediary is to manage the transaction from letter of intent execution to escrow closing.   An experienced business broker will serve a trusted guide through this process shepherding the parties at an appropriate pace through the prudent series of steps necessary to complete a transaction in an environment of full disclosure employing “best practices”.   It is my firm’s goal to complete sales in 6 to 8 weeks from execution of the LOI.  We consistently achieve this goal by having time tested processes, knowledge, and experience gained from IBA’s successful facilitation of over 4000 business sale transactions in Washington, Oregon, & Alaska since 1975.

The sale of a business is frequently one of the biggest events in an entrepreneur’s life.  The sale of a privately held company or family business has significant financial & career path implications.  It is not an activity that a person should try themselves or put into the hands of a novice if they wish to achieve the best possible results.  If a business sale facilitated by a firm with market leading knowledge, experience, and skill is desired in the second half of 2019 or 2020, we would welcome the opportunity to meet with you and show why the team of “heart surgeons” employed at our hospital, IBA, are some of the best in the United States.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.