In practice, the best time to sell a business is after it has at least 2-4 years of historical growth with a clear and reasonable forecast of at least 1-3 years of projected growth. This scenario affords a high level of current and future earnings, a high multiple and a strong likelihood of success.

On a more personal level, the best time to sell is:

(i) while you still have your good health, as your continued involvement post-sale may be an important part of the buyers perceived value of the business;
(ii) before your demise so that your spouse is not forced to take on this undertaking in your absence; and
(iii) before you get "burned out" recognizing that selling the business will take a relatively long and concerted effort.

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What is the value of my business?
Valuing a business is both an art and a science. Numerous variables go into the valuation mix. These are divided into three main categories: company factors, financing factors and transaction or sale related factors. The principal company factors are as follows: growth rate, size, assets employed, profitability, quality of the management team, degree of intellectual property, distribution channels, level of competition, synergies, etc. Financing factors relate to the ability to finance a transaction-without which there is no transaction. Financing factors include: prevailing debt multiples, lender advance rates, interest rates, stability of cash flows, industry perceptions, etc. The final factor driving valuation is the method of sale. A private sale (seller deals with one buyer usually without engaging the services of an investment banker) tends to yield a lower valuation than a public sale (seller insists on dealing with multiple prospective buyers with the assistance of an investment banker who conducts a comprehensive and broad based auction).

Generally speaking, middle market companies tend to be valued at a multiple of Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). In the final analysis however, value is in the eye of the beholder. An investment banker specializes in creating and harnessing the power of a market (creating a supply-demand imbalance which increases the valuation of a business and tilts the balance of power in the seller's favor). Simple economics states that price is a function of supply and demand. By increasing the demand for a business, investment bankers play an important role in maximizing the price ultimately paid.

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For example, a seller may receive two or more seemingly identical offers (i.e. the offer amounts are the same). Depending upon the deal structure, the after-tax proceeds of each alternative could vary significantly. Even though both parties are offering the same price for the business, the seller receives substantially more or less on an after-tax basis depending upon which alternative is chosen.

Payment terms may also impact the economics of one proposal versus another. Cash is preferable to other forms of consideration such as stock, note or earnout. One offer may on the surface be higher than another but actually be less attractive if it incorporates significant amounts of deferred or contingent consideration. The trouble with deferred or contingent consideration is that the seller may never actually receive it.

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What steps should I take to prepare my business for sale?
This may sound self serving, but perhaps the best thing you can do is to find a good investment banker. The case for employing an investment banker (irrespective of whether or not you select our firm) cannot be emphasized enough. Investment bankers will help you with all aspects of preparation and implementation. Every business has certain skeletons in the closet, yours may also. An investment banker will help you deal with these issues ahead of time. Even the most seemingly serious problems can usually be dealt with, if discussed upfront. If they become last minute surprises, best case, they erode the buyers trust and belief in the seller, worst case, they can undermine the deal entirely.

Other suggestions include: (i) develop a strong management team and succession plan; (ii) be in a position to provide at least two (2) or years of reliable financial statements prepared by a reputable certified public accounting firm; (iii) develop a sound, reliable and timely internal reporting and information management system. During due diligence, the process will benefit tremendously by your ability to respond to detailed questions in a timely, accurate and comprehensive manner.

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How long does it take to complete an M&A transaction?
Every transaction is different. However, most transactions take anywhere from six (6) to nine (9) months to complete.

Janes Capital Partners has completed transactions in as short as three (3) months while others may have taken up to twelve (12) months. In instances, where the transaction takes significantly more or less time than the norm, there are usually certain company or transaction-specific circumstances which necessitated a variance. These tend to be exceptions however. In the absence of unknown or unanticipated special circumstances, six (6) to nine (9) months should be sufficient.

Although the seller might be anxious to conclude a transaction quickly, it is not in his/her best interest to "rush" the process. Speed often comes at the expense of other negotiated terms and conditions. Buyers are attuned to a seller's need or desire to move quickly and will not hesitate to capitalize on this perceived weakness. Quicker is not necessarily better.

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What are the steps involved in selling a business?
The M&A process is a "courtship" which traditionally follows a series of steps necessary to reach the mutual but conflicting objectives of both buyer and seller. Buyer wants to know everything possible about a company and pay as little as possible, seller wants to protect his/her trade secrets and sell the business for as much as possible. What ensues is a series of exchanges of both information and viewpoints, the outcome of which, reflects the relative strengths and negotiating leverage of each party to the transaction.

There are three (3) distinct phases of the transaction: pre-market preparation, marketing and finally negotiation & closing. The pre-market preparation phase involves developing a well written and concise investment memorandum and supporting materials, formulating a comprehensive data room, developing an optimal buyer list, assembling a team of knowledgeable advisers, analyzing historical and projected financial statements and developing valuation methodologies supportive of the seller's valuation objectives. The marketing phase involves initial contact with potential buyers, obtaining signed NDA's, handling preliminary due diligence, obtaining non-binding indications of value, arranging either offsite or onsite meetings (or both), and introduction to management followed by submission of a final binding letter of intent ("LOI"). Finally, the negotiation and closing stage involves final due diligence, determination of final terms and conditions and negotiation of a definitive purchase agreement and related schedules.

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How many prospective buyers do you usually contact?
It depends. In some cases a large number, in other cases a small number. For example, Janes Capital Partners recently marketed a very attractive business to only eight (8) potential buyers. In actuality there were only eight (8) suitable and financially qualified buyers. Of the eight, six (6) companies submitted letters of intent. In contrast, we marketed another less attractive business to over ninety (90) candidates and after considerable time and effort received four (4) letters of intent. Two different businesses marketed in two different ways. Both ultimately met each respective seller's valuation objectives and each transaction was successfully concluded.

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Who will the likely buyer be?
In every M&A transaction it is important to have a "Plan A" and a "Plan B". Ideally Plan A will work out and there will be no need to revisit Plan B. Janes Capital Partners will not take on an assignment unless there is a high probability of success. We always have a Plan A and a Plan B.

In essence, there are two (2) main types of buyers. These include: strategic buyers and financial buyers. We include management buyouts under the category of financial buyers as they often involve private equity firms, or at the very least, are structured similar to a financial transaction. As a rule, we tend to shy away from entrepreneurs looking to buy their first business. They tend to be unfocused, undercapitalized and in the final analysis, reluctant to actually "pull the trigger".

The buyer that is usually able to offer the highest price is a strategic buyer-a large well capitalized, knowledgeable and sophisticated corporation within your industry. They typically seek horizontal or vertical integration opportunities, market share gains etc. They know your company, they know your industry, they tend to easily understand the potential strategic fit between their business and yours, they have the money to pay for a transaction and are experienced acquirers with sizable in-house as well as external M&A capabilities. All things being equal, a strategic buyer can and will pay more than any other type of buyer due to the presence of "synergies". Synergistic value can be substantial but it is not given up lightly. This has to be "pried loose" through a competitive sale process and exhaustive negotiation.

Financial buyers ("sponsors") offer different, but potentially attractive alternatives for a seller. Sponsors tend to be an excellent alternative to explore when the management team would like to recapitalize, diversify a portion of their wealth away from their ownership in the business, and still remain with the business - sharing in the future value created by the combined management and sponsor team. Sponsors typically inject a disciplined, sophisticated set of financial tools to manage the business, either by providing growth capital or introducing operating partners in key unfilled roles that a business may not easily fill on its own.

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Why do I need an investment banker?
Investment bankers are experts at selling a business. Our firm like some others, runs a rigorous, broad-based and highly structured auction process. A reputable investment banking firm will do exhaustive due diligence, formulate a range of presentation materials both qualitative and quantitative, develop a comprehensive buyer list and actively market the company on the sellers behalf. Similarly, use of an experienced investment banking firm helps maintain confidentiality, minimizes interaction with unqualified or uninterested parties, allows key management to focus on day-to-day operations, facilitates the receipt of all proposals in a synchronized and timely manner so that a well informed decision can be made by the Board of Directors and shareholders encompassing all available options. Finally, a capable investment banking firm will coordinate and integrate the activities of the seller's legal, tax, accounting and other advisers, minimize costly mistakes stemming from sellers inexperience, and is the best means by which to engage in "bare knuckle" negotiations with the buyer, should that become necessary. The fee charged by an investment banking firm such as ours, usually pales in comparison to the additional incremental value that we are able generate. Don't take our word for it!-Janes Capital Partners has a long list of client references, that we are confident will support this assertion.

Should you choose to go it alone, the forces arrayed against you will likely be greater in number, more experienced, focused and unemotional, and usually very well coordinated. It is unrealistic for a seller to think that even though they have never sold a business before, that they are as capable and experienced as those that have, in most cases, many times over. It is telling that the majority of seasoned strategic and financial buyers won't even consider selling, once it becomes time to do so, without employing an investment banking firm-why would you? The real question is not "should you engage an investment banking firm" but rather "which one should you choose"?

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What qualities should I look for in selecting an investment banking firm?
Not all firms are equal. Similarly, no one firm is right in all instances. Our firm may or may not be the right firm for you, and if it is not, we will probably be the first to tell you. Our reputation stems from, among other things, past decisions to walk away from opportunities that we had even the slightest doubts as to our abilities to deliver in the manner expected.

In evaluating an investment banking firm, a seller should consider certain "prerequisites" and be attuned to any and all "red flags" or "warning signs". The prerequisites include strong negotiation skills, good presentation materials, a successful track record, a high closing rate, excellent references, proper regulatory licenses, size compatibility and industry experience. In contrast, the red flags and warning signs include high upfront fees, undue pressure to sign the firms engagement agreement, onerous and unreasonable engagement terms, a false or misleading valuation, not properly licensed, few if any references and little or no relevant industry experience.

In the final analysis, the specific experience, capabilities and chemistry of the transaction team (members of the firm specifically assigned to work on your transaction) matter more to the eventual outcome of a transaction, than do generalizations about the firm as a whole.

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What does an investment banker typically charge?
Our fee structure is comprised of two (2) components including a modest monthly retainer and a success fee payable at closing. The incentive is heavily skewed towards a successful close. Accordingly, we like you, are squarely focused on a successful liquidity event. We commit to work tirelessly on your behalf and do so on an exclusive basis. In return, assuming your needs our met successfully, we typically receive a "low single digit percentage" of the transaction payable from the sale proceeds at closing.

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Are there any other advisers that are needed?
Yes. There are a range of professional disciplines that may be involved in selling a business. Expert advice is a necessity. In addition to an investment banker, the team may, depending upon the circumstances, include some or all of the following disciplines: M&A attorney, accountant, tax, estate planning and investments. Each brings a unique and invaluable skill set at different parts of the process. The investment banker typically coordinates the activities of each and ties it all together.

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Do I still need to hire an investment banker if I already have an offer?

It is not uncommon for a business owner to receive unsolicited expressions of interest from parties claiming to be interested in acquiring his/her company. Although some of these inquiries may be genuine and sincere, a majority of them are not and should not be relied upon. Periodic expressions of interest from various unknown parties does not constitute an effective "auction" which is an essential element of any successful sale. It takes several (at least 3-4) interested, knowledgeable, and financially qualified candidates to create a bidding environment. One offer is simply not sufficient.

Even if the seller engages a single buyer in preliminary discussions which result in an offer, any such offer is usually quite unreliable until such time as the prospective buyer has conducted comprehensive due diligence. In the absence of pre-offer due diligence, the buyer uses information discovered during post-offer due diligence to negotiate significant price concessions. What once seemed like an attractive offer soon becomes less than desirable. An investment banker will establish a structured auction process, expand the buyer list, develop comprehensive due diligence information, and determine a clear and objective valuation for the business. This limits a potential buyer's ability to present a certain offer with the intent to negotiate the price down as opportunities present themselves.

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How are you going to keep the transaction confidential?

First and foremost, because we do not use a shotgun approach. We believe that quality is more important than quantity. Our activities are carefully controlled, preemptive and highly discrete. We insist that the client approves the buyer list prior to contact being initiated. In addition, the client is afforded an opportunity to review and approve all data and information prior to its dissemination.

Initial contact with potential buyers does not reveal the identity of the company. Signed non-disclosure agreements are obtained prior to the release of any sensitive information. Even after signed NDA's are received, we adhere to a strict process of revealing the minimum amount of information necessary for any given stage of the process (i.e. on a need to know basis only). We know what information to release and when to release it. This means that certain information may be withheld until the "11th hour" which might be the week before closing, or even the day of closing. Throughout, we use a series of screens to eliminate candidates that are either financially unqualified or just "tire kicking".

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What will be expected of the seller after the transaction has closed?

Most if not all post closing conduct of the seller is specifically addressed in the purchase agreement which may include a non-compete agreement, a non-solicitation agreement, a non-disparagement agreement, a confidentiality agreement as to terms of the transaction, a requirement to cooperate on certain tax filing matters, and an obligation to indemnify the buyer for certain breaches of the reps and warranties above certain limits. In addition, seller is expected to cooperate with buyer in drafting a closing balance sheet for purposes of determining any post closing purchase price adjustments.

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What should the seller expect from the buyer after the transaction has closed?
Most if not all post closing conduct of the buyer is specifically addressed in the purchase agreement. Expectations of the buyer tend to be more limited. Buyer is expected to cooperate on certain tax filing matters. Buyer is expected to cooperate with seller in drafting a closing balance sheet for purposes of determining any post closing purchase price adjustments. Buyer is expected to provide seller access to the books and records of the company in the event seller is entitled to any deferred or contingent consideration. Finally, buyer is also responsible to indemnify seller for buyer's breach of reps and warranties, although this is extremely rare.

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