Q: How do I know when it is the right time to sell?
There are a number of factors that can play into the decision to sell all or part of your enterprise. Some of those factors include market conditions (buyer vs. seller markets), capital constraints (i.e. not enough money to grow), partnership disputes, failing health, declining interest of owner, etc. Selling a company is a very calculated process that is not to be done hastily. A professional M&A advisor will act as your project manager and consult with a third party valuation firm on your behalf to determine a realistic valuation range of your company. With that knowledge in mind, we will help you assess the optimal time to sell. Sometimes, that optimal time is years down the road after initial steps are taken. Which is why it is never too soon to consult with a Certified Mergers and Acquisitions Advisor to ensure that your company is ready to sell when you are.
As a footnote, SM2 Advisors does not conduct these valuations in house as we believe strongly that such an arrangement would be in conflict with our role as your sell-side advisor. Rather, we bring in a third-party valuation firm that is familiar with the industry in question.
Q: I would like to sell my company and move on, but I’m concerned that when it’s all said and done, I won’t have enough money to maintain or improve my current lifestyle. How can I be sure that it will be enough?
A: This is a common concern for virtually every seller we encounter, especially in today’s interest-rate environment. Your company is providing you with substantial cash flow and a comfortable lifestyle, but after Uncle Sam takes a bite, you’re not sure you’ll be able to invest those proceeds in such a way that the income will be equal or greater than what the company is providing. We call this “seller math.”
A professional M&A advisor should be able to help guide you through this process with little effort. First, we would conduct an assessment of your company (working with a third-party valuation firm), then provide a valuation range, then work with your existing wealth management ad-visor(s) and CPA(s) to calculate best possible structure to maximize tax consequences, debt payoffs, etc. to determine what your net proceeds would be. From there, you can consult with your wealth advisor(s) to determine the income you could expect from those proceeds. Two things are worth noting here. First, selling your company is not necessarily an all or nothing decision. Many sellers, choose to sell a portion of their company to a strategic or financial buyer who will provide them with additional capital and resources, effectively reducing the risk and burden of management on the seller. This also gives the seller the opportunity to grow the company much faster going forward and potentially benefit from a much higher valuation upon the sale of his/her remaining interest at a later date. This works especially well for sellers who are not ready to retire upon the initial sale. Second, there are a number of ways to increase net proceeds as a result of tax and deal structure strategies. Again, an experienced M&A advisor will have the ability to guide you through this process in order to achieve the best possible outcome based upon your needs.
Q: What is a Certified Mergers and Acquisitions Advisor?
A: A Certified Mergers and Acquisitions Advisor (CM&AA) is awarded by the Alliance of Merger & Acquisition Advisors (AM&AA) and their academic partners, Pepperdine University or DePaul University, to professionals that evidence mastery of the M&A body of knowledge and a commitment to staying abreast of new developments in the field of investment banking and mergers and acquisitions. It also recognizes professional achievement and competence, serves as a tool to both attract and serve new clients, and provides detailed interaction with other professionals in the field. CM&AA professionals are accredited experts in one or more professional fields (i.e. CPA accountant, lawyer, corporate finance, and valuation expert, CFA or MBA with Wall Street-type investment banking experience) and understand the overall investment banking process for selling and buying middle market companies (revenues typically ranging from $5 million to $500 million).
Q: How long would it take to sell my company?
A: Selling your company is not a fast process by most measures. Assuming the company is actually ready to sell, meaning it is in stable condition, and the financial statements are accurate and in order, the average sale can take between 8-12 months if all goes well. SM2 Advisors We have sold companies in as little as 6 months. We’ve also had others go beyond the 12 month window for a variety of factors, usually external. After consulting with you to learn more about your company, we can provide guidance regarding timing which can usually be completed pre-engagement.
Q: How are M&A advisors like you typically compensated?
A: Most M&A advisors work off what is known as a “success fee” that is ostensibly a commission. This is a percentage of the sale price that is typically determined by a few different factors, but mainly by the size of the company. The percentage is higher for smaller companies. The idea here being that small companies can require a similar amount of effort as companies many times their size. That being said, these fees usually compress as company size gets bigger, for obvious reasons. Many firms charge a “retainer” fee up front as well that can be nominal to quite substantial. We at SM2 have moved to a more nominal fee up front followed by similar payments as certain “milestones” are met during the process. These payments are mainly to cover overhead for SM2 as the sale process can often take as long as 10-12 months. Ultimately, the advisor/seller relationship resembles a partnership. One that requires both parties communicate openly and work together toward the common goal of value maximization. With that in mind, we are always open to discussing the fee arrangement and structure to be fair and incentivize both parties to fulfill their end of the bargain to achieve the ultimate outcome.