Your Business Exit Journey
Jacob Robertson
Senior Relationship Manager | Bank Of America | MBA | US Army Veteran
I failed the first time I tried to climb Mt. Adams.
It was the summer of 2014. I was spending a few weeks in the Portland, OR area for work, and I was looking for some hikes to try on the weekends.
If you've been to that area, then you know exactly what I'm talking about when I say the volcanoes of the Pacific Northwest standout amongst the horizon unlike any other mountains in the lower 48. ?Just look at the picture at the top of this article, that's Mt. Adams in southern Washington. Mt. Adams, standing at 12,281 feet in elevation, was calling my name.
To put things into context, I'm from Virginia, and the tallest mountain I had climbed at that point was probably House Mountain with an elevation of 3,645 feet. However, I had just left the Army that June, so I thought I could handle Mt. Adams. Besides, the online reviews said it was one of the easier Stratovolcanoes in the area to climb.
I packed my bag, bought my climbing pass, and parked at the South Climb Trailhead. I set out towards a destination commonly known as "The Lunch Counter", a spot above the tree line where many people camp and rest prior to their summit attempt. The hike to this point was amazing, and I quickly arrived at the Lunch Counter ahead of my planned pace. But this is where the challenges really began. From this point on, the trail was basically steep ice. Despite my best efforts, I quickly realized that I wasn't going to be able to safely continue my ascent. I had no foot holds and nothing to grab onto if I started slipping and falling. Everyone else around me was easily moving up the terrain with the use of proper climbing equipment (crampons and ice axes), things I had never even heard of before. I accepted my reality, headed back down to my car, drove back to my hotel, and went online to buy my own set of crampons and telescopic ski poles. I reattempted the climb two weeks later, this time reaching the summit.
I reflect back on this climb often, and the many lessons learned. We all have our "Mt. Adams" moments in life. When you hastily set out to achieve a goal, get knocked down, then have to regroup and try again. The more we go through these events, the more we learn to value the guidance from those who have gone before us. I could have avoided a lot of stress and wasted efforts if I had just done some more research prior to my first attempt up the mountain.
That's where this newsletter comes into play
As an Investment Bank, it is Transact Capital's responsibility to guide business owners through the M&A process towards their goal of maximizing their exit. For many, they are only going to get one chance at a business exit in their lives. Inherently, this means that they are also going into the M&A process with basically no experience.
So let's focus today on what the actual journey looks like. What can you expect if you work with me and the experienced team here at Transact Capital Securities, LLC to sell your business and maximize you exit.
I don't want you to have a "Mt. Adams" moment while you are trying to exit your business.
This article is meant to be paired with a recent video series I created on our company YouTube page, titled the 8 Milestones Of M&A. Found here.
Understanding the 8 Milestone Journey
Much like climbing a stratovolcano, the process of selling your company is truly a once-in-a-lifetime journey. Done right, you can achieve your goals and change your life. Done poorly, and, well, you can guess the outcomes.
Before we begin, it's important to note that every business sale is different. However, our goal is always the same for our clients, maximizing their exit. With this in mind, we've identified 8 critical milestones that we will work towards along your business exit path.
While we typically work with our clients for several months/years prior to this point, the engagement letter is really where your business exit journey officially begins. This document is an agreement between you and us and defines our partnership towards maximizing your business exit.
Things you can expect to see in this document are a description of the services we are providing, details into the term of the engagement, payment structures, and the termination and tail period clauses. Once this is signed, we will begin a thorough analysis of your company, with the goal of best positioning it for the upcoming marketing campaign.
We will collect financial and other business-related data, and we will work with you to determine the prospective buyers we will market to. These prospective buyers could include Strategic buyers (those in your industry which may have common synergies), Financial Buyers (such as Private Equity Firms), and individual buyers who are currently in the market. Our goal is to cast a wide, but also a strategically targeted net to generate the most interest from the best buyer pool.
We will begin to generate this interest with the Teaser Document. The teaser is typically a one-page document that highlights your company to potential buyers, with the goal of convincing them to sign an NDA to see the full CIP.
A few things to understand with this document. First, realize that it is designed to protect you and your business. Prior to the NDA being signed, we will safeguard your identity by keeping the teaser anonymous, see below for an example of how we are able to accomplish this.
Next, we want to focus on creating a professional looking document that really makes your company stand out in the best way. Remember, your buyers are HUMAN, and we are focused on making a positive first impression. A few statistics to consider. For active Strategic buyers in the market, they are viewing around 250 teasers every year and only purchasing around 1-2% of these. For Private Equity/Financial buyers, they are viewing around 500 teasers a year and only purchasing around 1% of these. I say all that to make this point very clear, you have to stand out in the right ways, and it all begins with the teaser document we create for you.
Below is an example teaser. Notice that the document is very detailed and informative, but also completely anonymous. Can you tell which company this is? No, but interested buyers will be able to see enough to determine if they want to move forward.
Once they have received and reviewed your Teaser, we will collect signed NDAs from interested buyers before sending them the Confidential Investor Presentation (CIP), which we will cover in the next milestone.
For the NDA, this document is meant to protect you and your company moving forward. We will help you with creating this document based on the needs of your business. Each sales journey is different, so it is in your best interest to have a personalized NDA document specially written to meet your exact needs. Some examples of items we can cover include what type of information we expect to be protected by the recipient, how the material is to be handled, and how it is to be discarded or returned once its use is complete.
We will collect signed NDAs, then issue the full CIP for the Buyers to review.
The CIP is the primary marketing document that we will create for you and can be upwards of 70 pages. This document can go by many different names, but it's best to think of it as your executive summary that fully explains your business to potential buyers. Your CIP will tell YOUR story.
Below are some example slides of what you can expect your CIP to look like. A few things to point out. First, notice the appearance. This is a professional marketing document that we will make for you to showcase and promote your company. Second, realize that this document will not be anonymous. Now that we have signed NDAs on hand, we will be able to share deeper information about the operations of your business (though customer and employee names will remain anonymous). Lastly, we will also work to properly qualify potential buyers during this stage. We can tell them exactly what type of buyer you are looking for, which will help us as we being to narrow the field moving forward.
领英推荐
Once we issue out the CIP and allow adequate time for buyers to review, we will send out a call for them to submit their initial indications of interest. Our goal is to collect these at the same time, to allow us to process through them all and make the best decisions on which ones to move forward with.
The IOI phase is extremely exciting, as it is our first indication of the market demand to purchase your business. However, not all IOIs will be the same, and some will be of better quality than others.
We will help you work through these and begin to narrow the field and weed out the "tire kickers". Once we have made our decisions, we will coordinate Mangement Meetings with the selected buyers.
We often hear from our clients that the Mangement Meeting milestone is when the business exit process beings to feel "real". We will coordinate meetings between you and the potential buyers, and it's best to think about these with the end goal in mind --> We will be calling for final Letters of Intent after these meetings are completed.
For the buyers, this is their chance to fully understand the business opportunity. They will want to talk with you and ask their final questions before making a decision. Also, some of them could want to physically walk your site. This would really be dependent on the type of industry you are in. For an office-based company, a site visit won't be as critical. However, they will be much more important for businesses that use their site as a primary means of production (eg. a warehouse or manufacturing facility). If you are planning to give a tour, have it rehearsed and organized.
For sellers, this is your chance to understand the buying party. Ask yourself - Will they be a good cultural fit? Do they have the skillset, knowledge, and ability to take over and grow my company?
Remember, your business is your baby. You probably consider your employees, vendors, and customer to be part of your family. You will most likely want to ensure the new buyers will be a good cultural fit for the rest of the team.
These meetings can take place either at your site (typically after hours), at our office, or at a neutral site like a restaurant. You can expect them to last for 2-4 hours, and you should plan on being active and talking this entire time. Get a good night's rest, eat properly, dress professionally, and be ready to make a good impression.
Once these are completed, we will send out a call for final Letters of Intent.
The LOI is the final bid from potential buyers to purchase your business. From here, you will make a decision on which buyer to work with towards a final purchase agreement.
A few things to consider. Once you sign the LOI, you are effectively taking your business "off the market" and releasing some control of the process over to the new buyer.
With this in mind, it is in our opinion that the LOI should cover as much as possible in regards to the key items that will be in the final purchase agreement. You are still able to negotiate from a position of strength prior to signing the LOI, we will work with you to maximize this opportunity.
Ideally, we will have several LOIs for you to consider. We will create a comparison chart for you, similar to what is pictured below. This will allow us to easily compare the various offers and enable you to make the best decision. Also, remember that you will be considering the experience from the management meetings into your final decision.
Once you sign the winning LOI, both parties will begin working towards the final purchase agreement. This is a legally binding document that will finalize the sale of your business. Again, our goal would have been to cover as much of this document in the LOI phase as possible.
A few key areas to pay attention to. First, you will want to have a full understanding of the representations, warranties, and indemnifications written into the document. These are items written to protect the buyer after the deal has closed, and you will want to consult with us and your M&A attorney over each of these. Think back to when I said we should try and negotiate as much as possible during the LOI phase. Can you see the difference in leverage you have trying to negotiate these items during the LOI phase compared to the Purchase Agreement phase?
Second, the Purchase Agreement will usually include a final closing checklist of items that must be completed prior to the deal closing. This list could include things like getting regulatory approvals for the deal, as well as obtaining any needed landlord, vendor, or customer consents for the deal.
At the end of this process we will hold a final closing call with the buyer and their legal representation to finalize this document and complete the deal.
Don't Go Alone!
For many of our clients, they are getting one shot at a business exit in their lifetimes. This is the culmination of years worth of work, and they want to maximize their exit.
Our mission is to achieve that goal.
Like I said before, we like to work with our clients well in advance of signing their engagement letter. By working with you 12-18 months out, there are key areas we can focus on to help boost your valuation and reduce perceived risk within your business. If you're ready to learn more, reach out to me today to arrange a private conversation. Also, here are a few resources for you to consider: