M&A Advisors Provide Timeline of a Business Sale
When it comes to M&A transactions, there is no such thing as an ideal timeframe. Each deal is different and many factors come into play. The investment bankers and M&A advisors at Doeren Mayhew Capital Advisors offer the following guide to sell-side deal timing, including the steps involved and what might cause delays in your transaction.
How Long Should a Sell-Side Deal Take?
Most transactions take six to 12 months from start to conclusion. But, based on the nature and complexity of the deal, as well as the planning and organization of the company’s management, it could take even longer. On the flip side, when the situation called for it, our advisors have closed a deal in as few as 45 days. Outside factors affecting a deal may range from tax savings motivation, to a buyer who is anxious to get its new acquisition to market, to a seller who needs to sell quickly for personal reasons.
What Are the Major Steps Involved in Selling a Business?
This depends on your situation. Some businesses come to us once a buyer has approached them about selling their business. Others seek assistance years in advance with planning their exit strategy and putting the value drivers into place to make the transaction as successful as possible. But in most cases, we take clients through what is called a private-limited auction process, which includes:
Developing a strategy – Typically, a couple of weeks are spent conducting an initial strategic and financial analysis of the company and beginning to prepare a Confidential Information Memorandum (“the book”) that will serve to educate potential buyers on your business and its value.
Marketing your business to potential buyers – The next six to eight weeks will be spent finalizing your book, developing a list of target buyers and communicating with potential buyers. In exchange for signing a confidentiality agreement, buyers can review your book and submit an indication of interest (IOI) in purchasing the business. Meetings will be held with those interested parties who submitted an IOI to help you begin to narrow down your buyer pool.
Reviewing letters of intent and selecting a buyer – Over the next one to four weeks, it is time to analyze offers (both price and terms), tax ramifications, post-deal owner involvement and other factors, and help the owner select the winner.
Conducting due diligence – Once a buyer has been determined, your tax and business advisory professionals will step in for the next two to four weeks to guide you through due diligence – a process that is about as comfortable as a dental visit as you dig for old records and work to defend your numbers.
Negotiating and closing the transaction – Over the final two to six weeks, your deal team will work to finalize and negotiate the purchase agreement, which can also concurrently run with the wrap up of the due diligence. Here, the devil truly is in the details – from final working capital, to cash holdbacks related to representations and warranties, to noncompetes and everything in between – essential to a successful deal.
What Might Cause Delays in the M&A Process?
Once deal negotiations begin, buyers and sellers must work together to map out a loose timeframe. Flexibility is essential because you are unlikely to hit every date, including the closing target. Add in extra time and specific methods of resolution for unexpected events such as an additional round of due diligence, including vendor/customer inquiries, and working capital/price negotiations.
More out-of-the-ordinary delays may be caused by factors such as:
- The type of deal. Is your deal a fairly straightforward merger of equals, or is it a more intricate transaction that involves, for example, the sale of divisions to more than one buyer? The more “moving parts,” the longer a deal is likely to take.
- Contracts and agreements. Your deal team will need to review the conditions of contracts and agreements to determine if and how they will transition post sale, which can add significant complexity to the deal.
- Number of shareholders involved. The more owners in the business, the greater the risk of complications as you work to get on the same page about exit timing, price, terms, etc.
When selling your business, there will be inevitably encounter unexpected roadblocks, so be sure to contact our experienced team of licensed investment bankers to guide you through the process and work to keep your sale on track.