Never Too Small to Sell
Question: I want to sell my company, but I’m too small potatoes for M&A intermediaries to take an interest. What should I do?
The first thing to ask is whether you have a growth story within your company. That’s the most important thing; that’s the future of your company. It’s in your marketing results, particularly in your prospecting performance. It comes in two forms: prospect mailings and a review of the prospect universe room for growth. The answer is in your proven prospect universe, which is the quantity of names you can mail at breakeven or better. Those names typically come from either standard list rentals or co-op databases, like Abacus, Z-24, NextAction and so forth.
If you do, in fact, have a growth story and are too small to use an intermediary (i.e.: the sale of your business would result in less than $2 million to $4 million in transaction value), the next question I ask is the confidentiality constraints. Do your employees know you want to sell the company? If so, you can then go out and look for new investors much more openly and easily than if this is done in confidence.
But owners don’t always want to tell their employees that they’re looking to sell. Intermediaries feel it’s easier to accomplish securing new investors when the employees know and advertising and word of mouth can be used openly and freely.
So in cases when the employees know, I tell owners to start the process on their own, going through either people who’ve already approached them over the years, or possibly competitors, or by running a couple of small ads seeking new investors. I recommend placing these ads with a description of the business in the publications that serve this industry.
If the ads generate qualified potential investors, and the confidentiality agreement has been signed, the next step is to share initial performance data and financial statements with the interested investors. When interest continues, the seller will immediately want to qualify the investor’s ability to actually finance a future transaction, to actually consummate a transaction.
The process unfolds: I counsel smaller sellers to consider use of an industry intermediary when it comes time to negotiate the valuation and letter of intent. Many of the intermediaries will work on a day-to-day basis. I believe, two examples are James Adams and Fred Anderson.
Larry West is president of West Cos., a New York-based valuations and acquisitions consulting firm.