Insights & Info

Insights > How to Prepare Your Company for a Risk-Free M&A Exit

How to Prepare Your Company for a Risk-Free M&A Exit

By Generational Equity

Risk Mitigation

I recently read an interesting article published on Axial’s site entitled “Three Things to Consider Before Selling Your Business.” All three items were great to consider if you are planning your exit but in reality, one was (and is) the most important of all:

Deal with the things that scare buyers away!

So simple, yet so profound.

One of the most important aspects of our service as M&A advisors is helping our clients think about their companies the way buyers do. You see, buyer’s loathe risk. And they look at hundreds of opportunities every year and generally go with the ones that have the least risk associated with them.

What are the Risks that Scare Buyers Away During an M&A Exit?

  • Owner dependence
  • Customer concentration
  • Lack of financial controls/reporting

There certainly are others, but these are the big three. If you can improve your company’s position in any of these areas prior to opening discussions with a buyer, you will be in much better shape when negotiating the sale of your company.

The wonderful news is that none of these are rocket science. Simply focusing on them and applying good solid fundamental business practices can improve most of these areas.

Enhancing the Value of Your Business by Eliminating Risk

1 – Reduce Owner Dependence

First, most of our readers would agree that if they are making 100% of all key decisions for their businesses, this would be considered a risk by buyers. Because if you exit your company, who is left to make these decisions? The answer is no one, and the buyer would be incredibly concerned about business continuity post-transaction.

The solution is to hire, train and mentor a middle-management team. We understand that this is one of the biggest challenges facing middle market entrepreneurs, but it is also one of the most important. No matter how talented you are, make this about your team – not yourself – so that you can exit cleanly.

2 – Expand Your Customer Base

Second, customer concentration is one of the least understood buyer risks by business owners preparing for exit. For many, the fact that customer X is 40% of revenue is seen as a positive. Indeed, it most likely took you years to build the trust in that relationship for the client to represent that much of your business.

However, at the same time, many buyers, especially those outside of your industry, will be very concerned that customer X may change his/her buying habits once you depart. This is particularly the case if you are the primary contact with customer X.

To minimize the risk, do as much as you can to diversify your customer base long before you start to negotiate with buyers.

3 – Keep Financial Controls and Reports Up-To-Date

Finally, one of the biggest M&A deal breakers we face is the lack of financial controls and reporting. Far too often our clients don’t understand why we ask them to produce such detailed financials for the past three years. We only ask for them as part of our evaluation process because buyers will certainly ask for them.

Being able to produce them for us will only help you down the road when dealing with buyers during your exit, who will often produce 200-300 due diligence questions for you to answer, many relating to your historical financials.

The Takeaway – Start Your Journey to a Risk-Free M&A Exit

Starting today, deal with the major issues that scare buyers away. Trust us, even marginal improvement in each of these areas will dramatically enhance your company’s valuation to many buyers. You don’t need perfection prior to chatting with buyers, what you need is progress to the goals you have set. The Bill Murray movie “What About Bob” is instructive in these areas (baby steps).

If you would like to learn more about how you can improve and enhance your company’s value, you should attend a Generational Equity exit planning conference. These highly educational, complimentary meetings will help you learn more about positioning a business for sale and reducing the risks that scare buyers. Your time will be well spent learning how to think like buyers and giving you the knowledge to exit your company for maximum value.

For more information, please call us at 972-232-1121 or visit our website, provide us with your contact info and we will be in touch.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2018 Generational Equity, LLC. All Rights Reserved.

Make an informed decision

The best decisions in life are informed decisions. We release educational business insights like this every week. Subscribe to make sure you don’t miss the latest news, views and analysis.

Success

Success, you have been added to our list.

Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!
Andy Graham, Vice President, Modern Heating & Plumbing
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.
Michael J Polarek, President, Paragon Packaging
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”
Karen S. Williams, CFO, BW Manufacturing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.
Karen S. Williams, CFO, BW Manufacturing
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.
Michael J Polarek, President, Paragon Packaging