Key Considerations When Selling A Privately Owned Business – Top Tips For Success
Most often, selling a business is a once-in-a-lifetime event. It’s an exciting chance to create generational wealth for your family, preserve your company’s legacy, and establish new opportunities for your employees. However, successful M&A transactions hinge on several complex factors that require deep expertise, which can be difficult for business owners who are selling for the first time.
I am pleased to share with all of my connections on Kmend the following five key M&A considerations for business owners gleaned from years of experience in Wimbledon Park Capital working with highly successful founders, entrepreneurs and business owners.
1. MANAGING EXPECTATIONS
Managing expectations is a major hurdle for family- and founder-owned businesses entering an M&A process. In fact, very often unrealistic seller expectations related to value are the top challenge. Sellers may have unrealistic expectations for the value of their business.
Value ultimately depends upon many intricate factors, which shift over time. Many owners believe their company is worth more than the market will pay, creating a disconnect that could mean missing the best window of opportunity to sell at the highest price.
To avoid such a scenario, it’s vital for owners to have an accurate grasp of their company’s value on an ongoing basis. This can help owners know if an offer is reputable and a sale is a smart decision to meet their financial goals.
2. OWNER AND FAMILY DYNAMICS
Surprising as it may seem, it is often the case that many business owners don’t want their adult children to inherit the family business. Driving this trend is a desire to help the next generation forge their own paths and find their own success, a shift from past generations that often preferred children to stay in the family business. At the same time, many children of business owners are looking to pursue their own interests and career aspirations.
Family businesses used to be like the royal family; if you’re born into it, it’s your destiny. That’s proving to no longer be the case, especially for third- and fourth-generation descendants who are far removed from the business’s founder. These dynamics are leading business owners to find a better balance between company success and family well-being.
Owners are increasingly considering all of their options for exiting their company, rather than automatically handing it to their next of kin. Increasingly, they’re choosing the route that prioritises the long-term growth of their business, the well-being and preservation of their employees, and their responsibility to their community. This could mean succession planning and training up their next generation of family leaders, or selling to a competitor or private equity group.
3. EMOTIONAL STRAIN
For family-owned businesses that aren’t being passed to the next generation, selling can be highly emotional. In these situations, having someone in your corner with an objective lens on your business, the market, and selling opportunities can be helpful.
Selling a business is a high-pressure event, and if you’ve never been through an M&A process before, you don’t want to do it alone.
It’s important to have a rational sounding board throughout the sale that can bring you peace of mind, guide you through each step of the transaction, protect your best interests, and ensure everything will be handled correctly.
4. LEVEL OF COMPLEXITY
The path to a successful sale contains myriad complexities beyond getting it signed and what the final price is. Nuances exist around every corner, from legal and tax considerations to environmental issues and potential liabilities that exist long after a transaction closes. Owners should consult a wealth management expert to ensure their personal financial affairs are properly structured and planned out, well in advance of a transaction happening, to achieve the optimal outcome post sale.
Throughout the M&A process, business owners are exposed to a host of open-ended risks with long-term consequences. With so many potential legal ramifications, having a keen eye for every detail during a transaction is vital.
In addition, more first-time buyers are dipping their toe into the M&A water. These businesses are looking to be more acquisitive and generally they are pursuing smaller transactions. Surprisingly, these transactions are often more challenging than their larger counterparts. Larger targets are inherently more sophisticated. They tend to have more fully built-out departments and executive functions and operate with the necessary controls to minimise risk and improve operational efficiencies. This translates to more streamlined diligence. Smaller transactions, on the other hand, typically have a variety of complications driven by a lack of prior M&A experience and less M&A sophistication.
5. TIME TO CLOSE
Business owners may not fully appreciate the time demands of selling their company. The process can slow down considerably when adding the many high-priority responsibilities and time-sensitive communications of an M&A transaction to an already full workload of a CEO or CFO. Time can be an enemy of M&A. A drawn-out sales process leaves more room for outside circumstances out of our control, like the economic climate and global geopolitical developments, to impact valuation and the ability to close a sale.
A successful and high-value M&A transaction relies on timeliness. To stay on track, it’s critical to have a team that can support your needs, answer diligence questions, analyse and deliver key metrics, and ensure all deadlines are met to drive the process forward.
Due to the high complexity involved in smaller family- and founder-owned business transactions, they also tend to take longer to close without prior experience navigating the process.
Just because a transaction is smaller, buyer diligence won’t be any less demanding. These buyers still have liability risk and need to ensure all outstanding issues are addressed before moving forward.
Why You Should Use Wimbledon Park Capital
Selling a business can sound daunting—even to owners who feel ready for an exit. To support owners as they explore new growth opportunities through M&A, Wimbledon Park Capital and our partners offer tailored guidance and perspectives on market dynamics, industry trends, valuation perspectives, transaction alternatives, and much more. Contact us today to discuss how we can support you.
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