M&A Advisory:
Guide to Selling a Business

Ready your deal strategy


Selling your business is possibly the biggest financial decision you will ever make. Whether it is part of a succession plan, your personal exit strategy, or a divestment, you are smart to do it with experienced advisors by your side—people who know the marketplace, and the process,  and can give you the insight you need to make the best decisions.

Even if you know you are years away from a sale, speaking with an advisor will be worth your valuable time. For starters, your M&A advisor will help identify and assemble the most qualified team—including investment bankers, attorneys, transaction advisors, and diligence professionals.

The experiences of these experts can help increase your odds of success. There are several things to know before you even begin the sales process that an advisor can assist you with. Then, once you do have the right M&A advisory team together, they can help you;

  • assess your readiness to sell

  • make your business as attractive as possible

  • figure out the best price for your business

  • find interested buyers

  • determine the best offer for you

  • mitigate risk through due diligence

  • negotiate terms

  • close the deal

  • successfully integrate your business with the buyer’s business

There is a lot you need to do to get ready to sell a business (this seller’s checklist is a useful resource). Remember, it is never too early to have an initial conversation with an M&A advisor.


Role of A Transaction Advisory Firm in an M&A

Many firms offer transaction advisory and diligence services for M&A deals. Identifying the right one requires asking the right questions and listening for the right answers. Below you will find tips for vetting and working with an advisory firm. You will also learn the correct way to approach several important components of a business sale. These include:

  • Your readiness and strategy. This includes determining your motivations to sell, what must be done with your business before you entertain offers, and the best way to approach the process. You need to know what will get you to say “yes” to a deal because an offer may include provisions you are not planning for, but will they be deal breakers in your eyes?

  • Thorough due diligence to eliminate surprises that could sink a sale.

  • Tax structuring to maximize value and return on the sale. The potential for tax code changes in the future can impact what the best approach and timing is for some sellers. 

  • Closing advisory to help ensure no surprises occur at the closing table.

Readiness and Your Deal Strategy

As a business owner, you are always thinking about tomorrow. You are constantly watching, planning, strategizing, and evaluating opportunities. This includes the opportunity to sell. One of the pitfalls of selling is waiting too long to start the process.

You can begin today by asking yourself: Why do I want to sell this business? Self-awareness is critical. Your buyers will want to know why you are selling, so you better understand it fully yourself. Your motivations underpin your timeline, the valuation process, negotiations, and keep you focused on what is right for you and your business. 

Communicate fully with your M&A advisory team what you ultimately want to get out of a deal. Your sale may be part of your succession plan, your retirement plan, or a plan for you to stay on in a new role with your company. You should also apply this thinking to others on your staff. A strong leadership team is a valuable asset in a sale. 

Another question to ask is whether you have the right legal structure for your company to achieve your goals. Your transaction and diligence advisory team can analyze this and help you make a change if one is required. When vetting advisors, ask about their experience with sales of companies structured similarly to yours.

Think Like A Buyer

Not all buyers are looking for the same thing in a business. You will be in a better position to sell if you understand the motivations on the other side of the table too. There are several different types of buyers you may encounter but they fit into two general categories: strategic or financial. 

Strategic Buyers

A strategic buyer is looking at long-term strategic value. They may want your business so they can improve their own with new capabilities, expand their customer base, or add additional service offerings. Acquiring your business may be part of a larger strategy that includes acquiring other businesses as well.

Typically strategic buyers come from the corporate development world and they may have well-established teams or outside consultants to concentrate on legal and financial issues that will come into play during an acquisition.

There are private equity (PE) backed strategic buyers. It is possible a PE-backed buyer will be able to move quicker because they already have a pool of funding and a vision for what type of business they are looking to purchase

Financial Buyers

These buyers think like more traditional investors. They want to buy your company, hold it for a defined period of time, and sell it again for a profit. There are specific subcategories within the group of financial buyers. Here are several types you may encounter.

  • Private equity firms have a fund committed to acquisitions. They may be focused on specific industries, end markets, or business sizes. You should understand the investment thesis of a PE firm and whether it will comport with your selling goals. 

  • Venture capital is similar to PE but the funds are generally targeted towards startups or smaller businesses with the expectation that they will grow.

  • Angel investors are generally individuals using their own funds for acquisitions. Likely, they will be looking for equity as part of their investment.

  • A search fund backs an individual (often a recent business school graduate) as they pursue an investment.

  • An independent sponsor is an individual who will partner with a private equity firm or a mezzanine debt provider once they have found a business to acquire. Keep in mind, they may be still raising capital for their purchase while they are in initial talks with you.

  • A family office is associated with a successful business that is closely held. It sets aside money in order to diversify or create opportunities for the up-and-coming next generation. Each family office is unique, so it’s important to find out as much as you can about what a family office may be looking for in terms of their objectives, strategy, and timing.

One option you may be considering is a proprietary deal—where you work with a potential buyer who approached you in an unsolicited manner. There are unique pros and cons to these types of transactions and it’s important to have realistic expectations around a proprietary deal.

When searching for M&A advisors, make sure they have experience closing deals with all sorts of buyers. The breadth of this experience will help you position your company best. No matter what your deal strategy is or who your potential buyers may be, make sure you have your M&A advisory team and legal counsel in place before you begin any of the due diligence work. 

Getting Your House in Order

house-in-orderAny potential buyer will have very specific questions and your answers will either put the buyer at ease or open up issues that could derail the sale altogether. Getting your finances and operations in order before taking your company to market is wise.

Each business must determine what this means for their unique situation, but an M&A advisor can help. They will know what potential buyers will be looking at most closely and can assist you in coming up with processes and a plan to put your best foot forward when you do start looking for offers. It’s important to have a sense of whether your company is an A-asset.  Should this not be the case, what practical solutions exist, and how would this discrepancy affect perceived value for potential buyers?

LOI to Due Diligence

Receiving either an indication of interest (IOI) or a letter of intent (LOI) from a potential buyer is exciting, but it can also be daunting. It puts you on the clock to finish your due diligence and make sure the negotiations move smoothly as you approach the closing date. The deeply technical due diligence process is where a transaction advisory firm can add tremendous value.

You should expect your buyer will have outside help in completing their due diligence so you will likely be up against experts in this area. An LOI must be dissected with extreme attention to detail. It could define complex parts of the deal like working capital, debt numbers, and how a transaction will be structured. If something around the LOI is overlooked the likelihood of a retrade is higher, or a deal could fall apart altogether. You would be taking on considerable risk by evaluating LOIs and proceeding with the required due diligence alone here. Because time and surprises kill deals, good M&A advisors focus on keeping things moving and being thorough.

When vetting advisory firms, ask what experience they have creating and analyzing financial statements, quality of earnings (QoE) analysis, and the many other documents involved in due diligence.

During this time, your buyer will be both looking forwards and backwards at your company. They will create forecasts, try to confirm synergy opportunities, and finalize a plan for integrating or running your business. Their comfort level with your data and documents will directly impact what they believe your company is worth and what they will offer.

Financial Due Diligence

A best practice as you go through the finances of your company is to preemptively prepare a QoE analysis that covers:

  • Sales and profitability analysis

  • Normalized earnings for:

    • Cash-to-accrual conversion

    • Non-recurring transactions

    • Non-operating transactions

    • Run-rate adjustments for operational changes

    • Out-of-period transactions

  • Cash proof of revenue and expense

  • Free cash flow

  • Annual and monthly recurring revenue for subscription-based businesses

  • Customer churn

  • Net working capital

  • Debt and debt-like analysis

A firm that specializes in providing due diligence services can help you spot potential red flags in your QoE analysis that the buyer may ask about. Taking care of these before negotiations begin is critical.

There is a good chance the offer for your company will be a multiple of its adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). For example, if the multiple for your industry is typically 3X and your adjusted EBITDA is $15M, you could expect to see offers around $45M.

Calculating adjusted EBITDA is a complex process and having your own work done in this area will improve your standing during price negotiations. It is best to work with advisors who know your industry well and can explain the potential value of your company with hard data.

Other Areas of Due Diligence

Overall a transaction advisory service firm can help you “tell your company story” with documents created as part of the due diligence process. Remember, your story is unique, so this part of the process will also be unique to your company.

An experienced transaction advisor can help document and explain the fundamentals in each of these areas as to how it drives value for your company.

  • Tax diligence is both looking back and looking ahead. It will cover your returns, audits, and accounting methods for things like deferred revenue.

  • Operations diligence is forward-looking for how a company will be integrated and/or run after the deal closes.

  • IT diligence can take on many forms including security, your infrastructure, systems, and processes.

  • Legal diligence covers the chosen entity structure for your company and management, your contracting process, and litigation that is pending, threatened, or settled.

  • HR diligence will look at your people, policies, compensation packages, and procedures. The people at your company may be a huge driver of value for potential buyers, so that must be explained as part of your story.

  • ​​Commercial diligence covers your position in the market combined with market insights mixed into it. It will include who your customers are and the relationships you have with them.

Closing and Integration

Two people shaking hands

The closing can be a stressful time because you will be losing leverage in the process as the day approaches. There are closing table best practices your advisory team can help you implement to keep the deal on track and avoid a retrade. One is making sure your attorney reviews all the contracts, not just the purchase agreement.

Whether your selling strategy is to completely bow out, stay on in a limited role, or still be actively involved in running your company, there is a lot to think about in terms of integration post-close. Whatever your goals, retaining the value of your company and its brand through the sales process is critical. Here the right M&A advisors can help with a lot of the heavy lifting so you can remain free to run the business day-to-day and keep things going in the right direction.

You will need a plan for communicating information about the sale both internally and externally. This includes sharing the news with your employees and your customers in ways that are appropriate. It is important to get this right because often there is a potential earn-out for sellers if the integration meets specified success measures.

If you are rolling equity over and staying on with the company you will also want to see the transition go as smoothly as possible because, again, it is in your own financial best interest.