By Kyler Gilbert, Associate Consultant, Business Consulting Resources
Business Consulting Resources is excited to share with our community and clients that we have a new collaborative relationship with Tabori Gilbert. As specialists in mergers and acquisitions and business brokerage, Tabori Gilbert offers our clients expertise in consolidating their company and business assets.
This three-part Q&A blog series offers insight from Dan Tabori, managing partner at Tabori Gilbert (TG) into what they do for business owners and advice for those exploring the process of selling their business or buying a business.
In part 1 of this interview, Dan Tabori discussed what M&A and business brokerage is. He also talked about how M&A can impact a company.
In part 2 of this interview, Dan Tabori discussed the impact of M&A on the employees and its stakeholders.Business Consulting Resources has a new collaborative relationship with Tabori Gilbert. As specialists in mergers and acquisitions and business brokerage, they offer our clients expertise in consolidating their company and business… Click To Tweet
In this third installment, we learn more about engaging in the M&A process, including key milestones, preparation, and things that can go wrong.
Dan Tabori Interview — Part 3
BCR: What are the major milestones of the selling process?
Tabori: First, getting the company ready to sell. This includes a diagnostic and an executive summary that collects all the confidential financial and company information in one place. If the company is ready and has the resources to engage, this is the 60–90-day milestone. At that point, the seller should have a good idea of the value of their company and can decide whether or not the company and the seller are ready to go to market.
Second, the seller decides to go to market and the outreach programs begin. TG will reach out to companies that would be a good fit to buy the company. This can take anywhere from 2-18 months to find a ready, willing, and able buyer. You’re working towards an offer, usually in the form of an LOI, which spells out the terms of the deal.
Third, after negotiating the LOI, you begin a due diligence period, which lasts a minimum of 45 days where the buyer will request a lot of information from the seller and the seller can provide a deep level of understanding of their customer from their perspective. The objective is to make sure that all of the information the seller offers when they go to market can be proven and that a definitive purchase agreement can be agreed upon, which represents the close of the sale.
BCR: What do I need to do to prepare myself and my company?
Tabori: Here are my top four things you need to do the prepare your company:
- Make sure that your financial books are in order and ready to be shared with a potential buyer. You can get help through a business broker or your CPA.
- Develop a strong leadership bench within your organization so that the buyer feels that there is good talent left behind to carry the organization forward.
- Develop a clear vision and strategic plan and actively continue to pursue growth strategies so that the profitability of the company is healthy when you engage a buyer.
- Hire a business broker or advisor to help you through the process. It’s stressful and most sellers are too close to it to remain truly objective. In our experience, we have also seen the seller cause a really good offer to go south and the deal not close.
Often, companies don’t have the internal resources to do all of this work to prep for a sale so they will bring on other advisors and companies to help them.
BCR: How do you identify potential buyers and how do you keep the entire process confidential?
Tabori: Typically, TG will work with the seller to develop a list of targets that might be interested in buying the company. We will reach out to those targets and speak with them in general terms to maintain confidentiality (e.g., Working with a company in construction doing 35 million in revenue looking to sell and we thought you would be a good fit). Once the company is determined as an interested and qualified buyer, we will have them sign a confidentiality agreement (NDA) so open conversations can begin, and only after that will TG discuss the name of the selling company.
BCR: What are some of the common problems that can derail an M&A/business brokerage process?
Tabori: In the first stage, where you get the company ready for sale, you have to make sure the seller is emotionally ready to sell their company, which can lead to other conversations with other family members who may decide that they should not sell.
Another fear is that once the seller receives an offer, there are multiple issues that can derail the sale. What’s in your control is making sure you disclose as much as you can upfront before the LOI. What’s especially important is making sure you have clear financials and a clear business plan. Having strong management will also make it clear the company is on solid footing. When you don’t offer this upfront, the buyer can find the flaws in the business and unveil any skeletons that are in the closet during due diligence.
On the buyer side and more outside of your control, the financial situation of the buyer can change. Your business broker should make sure to qualify your buyer and make sure they have the financial wherewithal to buy your business. This is like a pre-approval letter from the bank when you try to buy a home. Covid is a classic example of external factors affecting the buyer’s financial situation and making it more difficult for them to buy your company.You have to make sure the seller is emotionally ready to sell their company, which can lead to other conversations with other family members who may decide that they should not sell.Dan Tabori, Tabori Gilbert Click To Tweet