M&A: The Importance of Creating a Market When Selling Your Company

Whenever I find myself talking to a former business owner who recently sold his company, I always ask him how the transaction came about, the dynamics of the negotiations, and if he is satisfied with the final terms of the deal. More often than not, if that business owner sold his company on his own rather than hiring an investment banker to advise him, the answer is something similar to: “Well, one of my competitors called me up and said they wanted to buy my company. After I sent them my financial information they made me an offer and it seemed fair, so I accepted it.” At that point, I realize the seller almost certainly left a lot of money on the table during the largest transaction of his life, and I just wish I could have met him earlier so I could have helped him.

I understand how owners find themselves in that situation. The owners of most companies are very smart people. They have often started the company they are running and have managed it for years. They have been in hundreds of negotiations throughout their careers and look at selling their company as just another negotiation they can handle on their own. The problem with that assumption is that their wealth of experience is in building and running a business, not in selling companies. It is the first transaction of this type or size they have ever been involved with and they are usually negotiating against a team of people who has worked on dozens of similar transactions. They could have easily leveled the playing field and increased the sale price by hiring an investment banker like Sympheron to advise them throughout the sale process.

Sympheron does many important activities when advising clients who are selling their companies, but the most valuable activity is creating a market for the company. Creating a market in this context simply means finding multiple buyers to evaluate and offer to purchase the company. A buyer who makes an unsolicited offer to purchase a company knows they are the only buyer at the table. Why would they put their best offer forward? Further, why would they negotiate the price when there aren’t any competing offers?

When a company receives an unsolicited purchase offer it isn’t too late to engage an investment banker to create a market. The investment banker will help to review and respond to the offer while quickly contacting other prospective buyers and getting them up to speed on the merits of the company for sale. If the process is handled properly, by the time the seller has to start negotiating price with the original buyer they will be able to inform the buyer that they have other buyers evaluating the company, or better yet, that they have received other offers that are higher than that of the original buyer. The tone of the negotiations will change immediately, and the maximum value from the group of potential buyers will be discovered through continued negotiations.

An even better result can be achieved if the seller is proactive instead of reactive in deciding to sell the company. By being proactive and engaging Sympheron, we can take the necessary steps to maximize the valuation received for the company. We will take the necessary time up front to prepare detailed offering materials and presentations that fully describe the company in a professional manner. As the materials are being prepared, we will formulate a list of potential strategic and financial buyers and start marketing the company. The list of potential buyers will be much larger than the list in a reactive marketing effort as described above, and thus increase the chances of finding multiple potential buyers to bid against each other.

During the sale process, Sympheron will manage the information flow, meetings with management, and company tours. When we have enough interested buyers who have received adequate information to make an informed offer, we set a date for when initial offers are due and what terms we expect to see in the offers. After all offers are received and evaluated, we inform the potential buyers where they need to improve their offers and give them the next date offers are due. This “auction” process can involve several rounds of offers and negotiations. Based on continuing discussions with the buyers we determine when the best possible offer has been reached and conclude the process by having the seller and winning bidder sign a letter of intent.

There should be no doubt that creating a market for a company allows for competitive bidding that results in the best valuation for the company being sold. Sympheron can help sellers prepare their company for sale, create a market for the company, and maximize value.