Last month Mergers & Acquisitions magazine, published by the ACG (Association for Corporate Growth), produced an article that I found quite interesting. The piece, “Precision Sourcing,” focused on how equity firms historically have worked on sourcing acquisition targets. It was a very well written piece, and it caught my eye because it indicates why owners of middle-market businesses need professional representation when they are looking for buyers.
First, nearly all the equity firms interviewed begrudgingly admitted that although they liked to source deals directly for a variety of reasons (not the least of which is they typically pay less), they admitted having an M&A intermediary involved was helpful for two reasons:
These are both valid points. Without professional representation, the typical business owner is facing a daunting task. The first hurdle is determining what the business is worth, then creating documentation to support that, and finally finding buyers willing to meet their value expectations. Professional buyers that we deal with indicate that our clients have a much more realistic idea of their businesses’ values because they have spent weeks and months with an M&A advisory firm during the evaluation phase.
In addition, Generational Equity has teams of extremely experienced dealmakers, many of whom have been focusing on closing deals for more than 20 years in this niche. This gives you the advantage of dealing with a team that has most likely seen every potential deal breaker out there.
Finally, and most importantly, equity firms want to deal with committed sellers. These buyers look at hundreds – if not thousands – of deals annually. Once they narrow this down to a few dozen, the time it takes to close two or three is amazing.
The one thing that equity firms have little of is excess time. So the last thing they want to do is spend 5-6 months in due diligence only to have a non-committed seller back out at the last minute. Sellers who hire intermediaries give professional buyers more confidence that the business owners are committed to selling. Paying an upfront fee proves that to them.
Years ago when the private equity industry was in its infancy, most firms would cold call potential sellers. This was a very time-consuming process, but it gave the equity firm a huge advantage: They could offer rock-bottom prices and sellers would agree.
Soon sellers recognized this and so too did investment banks that had focused traditionally on very large deals. Many started moving downstream into the lower middle-market to fill a need consulting with smaller businesses. By the time the private equity boom of the mid-2000s hit, according to Mergers & Acquisitions:
“Just about every deal that was completed was represented by an investment banker. Even mediocre companies were able to command high purchase price multiples during this time frame.”
This brings up another advantage of using an M&A advisory firm: the limited auction. As we all know, prices go up if there is more demand than supply. Auctions are great ways to create this supply-demand deficiency.
You have one company. If you have multiple buyers interested in your company, you will most likely get more for your company. Using an M&A intermediary gives you this opportunity. Again, according to Mergers & Acquisitions:
“Many private equity professionals still look for ways around getting into a situation where a potential asset is represented by a banker, and multiple firms are bidding for it.”
If you use an M&A consulting firm to represent you, chances are better that you will have multiple buyers interested in your firm than if you sell it on your own. Professional buyers know this and will pay a lower price accordingly if you have no representation. As Mergers & Acquisitions put it:
“Dealmakers admit that sell-side advisers can certainly help a process run smoothly and, although the price might be higher than if the deal was proprietary, the certainty of close as well as sellers’ expectations are more in check.”
So, even professional buyers are willing to pay a premium if an M&A advisor is involved BECAUSE the deal has a higher chance of closing. This is critical for you to remember as you approach the sale of your company.
You only have one chance to get it right. And getting it right not only means closing the deal but it also means getting an optimal deal structure and price for your company. Many sellers without professional representation leave significant value at the table. You can see why when you look closely at this quote from Kevin Lindsey, founder of DVS Group:
“If you look at our average transaction multiple, we have only one transaction out of the last 50 that exceeded five times EBITDA (earnings before interest, taxes, depreciation and amortization). We have never been about an auction environment. But the ONLY way to avoid an auction is to source and engage directly with the seller and be the first one in.”
So what have we learned? Clearly if you want top dollar for your company, your odds go up if you have professional representation. Even professional buyers are willing to admit that. They have even told us that! It proves to them that by hiring an M&A firm that you are committed. It also creates a limited auction opportunity that can benefit you.
If you are at the stage in your life where you are considering divesting your company or looking for an equity partner for growth, you need to engage with an M&A firm to discuss your options. Generational Equity is recognized as a leading lower middle-market M&A advisory firm. Our dealmakers have successfully been selling companies to optimal buyers for decades.
If you are interested in learning more about us, I encourage you to call us at 972-232-1121 or fill out a contact form. We hold no-obligation M&A seminars around the country and would be glad to meet with you privately to discuss your situation and specific needs.
If you do decide to market your company on your own, keep the statements from these professional buyers in mind. Hopefully you will be able to avoid many of the mistakes that entrepreneurs make when selling by doing so.
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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
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.Betty L. Brennan, President, Taylor Studios
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.
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.
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
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.
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
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 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
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 must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
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
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
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 quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
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 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
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
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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
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
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.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.
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
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
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
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
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
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