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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.

© 2021 Generational Equity, LLC. All Rights Reserved.

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We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.
Rick Greene of Dobbs Equity Partners LLC
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.
Salvo Stoch, Founder and CEO of Sleeping Partners
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.
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
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
Betty L. Brennan, President, Taylor Studios
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.
Caroline Connelly, CEO, OptoTest
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!
Eric Erlandson, Owner, Action Fastenings, Inc.
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.
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
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
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
Bryan D. Horn, Owner, Over Under Clothing
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward. P.S. Given my experience with GE I felt comfortable enough to sign up with Generation Wealth Advisors!
Tom Currier, Former President & CEO, Rackmount Solutions
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 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.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
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
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.
Shane and Johanna Kline, Owners of Vision Upfitters
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
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!
JoAnn Ellis, Owner of Fondren 5 Star Kennels
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.
JoAnn Ellis, Owner of Fondren 5 Star Kennels
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 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.
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
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.
Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC