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VideoThe Timeline for Selling a Business: Key Steps in a Sell-Side Transaction | Podcast
National Market Leader, Private Equity
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Private Equity in Motion
Selling a business involves more than finding the right buyer. In this episode of Weaver: Beyond the Numbers, Private Equity in Motion, Sean Muller and Bill Cornelius of Crutchfield Capital discuss the typical timeline for selling a business, from preparation and buyer outreach to evaluating offers, signing a letter of intent and closing the deal. They also explain how sellers can compare competing offers, navigate different deal structures and understand the factors that can influence transaction outcomes.
Key Points:
- Sell-side transactions typically take six to nine months and involve key decision points from preparation through closing.
- Evaluating deal structure is just as important as evaluating price, as terms can significantly affect overall value.
- A buyer’s credibility, track record and ability to close may be just as important as the highest offer.
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Detailed Description of The Timeline for Selling a Business: Key Steps in a Sell-Side Transaction
00:00:00
Sean: As we continue our sell-side series, Bill Cornelius of Crutchfield Capital is joining me again. And I just want to have him help me walk through the timing of a deal and what it looks like.
00:00:10
Sean: We’ve talked about sell-side diligence. We’ve talked about the need for an attorney, etc. But what’s really the timing of a deal? What’s the starting point when they engage you or even before they’ve engaged you?
00:00:20
Bill: From the time we’re engaged to the time that a deal closes, on average, is six to nine months. There are four phases and go-or-no-go decisions in there.
00:00:35
Bill: The first phase is the preparation of the materials. We’re looking at the financials. We’re working with you guys on the quality of earnings analysis. That typically takes one or two months.
00:00:45
Bill: And only at that point do we enter the market and start communicating with buyers. And that communication lasts about a month before we see initial offers. And then the client has a go-or-no-go decision. Are they seeing value structures that they’re interested in? That’s about a three-month point.
00:01:07
Bill: And then after that, we may cull the group to just a handful, do management meetings often in person with the owner and that’ll take about a month to schedule. Then you’re deciding whether a final offer comes in that is of interest. If that’s of interest, then you sign a letter of intent and typically a deal will close within two or three months.
00:01:32
Sean: And so when you’re looking at that, you talk about the buyers. So obviously part of the value-add you bring to the table besides being the counselor and understanding how it works is you have your Rolodex of potential buyers, right? How does that happen?
00:01:47
Bill: That’s right. We have a Rolodex database with thousands of buyers. I think it’s north of 5,000 buyers: family offices, private equity firms, individual investors and strategic buyers.
00:01:59
Bill: And so typically what we do is we’ll identify with the client, “These are the list of strategic buyers we want to go with.” And then we have a full sub-database of financial buyers. We might end up with 100 confidentiality agreements signed.
00:02:16
Sean: Okay.
00:02:17
Bill: And 10, 20 offers on the company, for example.
00:02:21
Sean: So, how do you help the seller when you get an offer? Because when you’re in school, your company is worth $10 million and you’re going to get $10 million, but that’s not how offers come across. Offers have all sorts of different variables, whether it be rollover equity, whether it be a note, whether it be an earn-out, or whatever else.
00:02:40
Bill: Exactly.
00:02:41
Sean: So how do you walk them through that and do that? I’m sure you’ve counseled that as well, what it means?
00:02:45
Bill: Absolutely. A mentor of mine likes to say, you tell me the price, I’ll tell you how I’ll pay. And so the price is just the starting point. An example would be buying something for $100, but I’ll pay you $1 upfront and $99 over time. That’s not a very good offer compared to $90 upfront.
00:03:11
Bill: And so we are working with the client to explain these nuances in the proposal. Is it an asset deal? Is it a stock deal that can have massive tax implications, as you know well?
00:03:25
Bill: Of course, the price and then the consideration. Additionally, what is the credibility of that buyer? Do they have the capital already secured, already available? Those are all nuances that may not be apparent when you read the offer.
00:03:44
Sean: And then there’s also the buyer that may make a higher offer that looks great on paper, but then there’s a reputation that they’re going to really beat you up in diligence and go back and hammer you on pricing. It may be the highest number on paper, but experience-wise, it may not be the highest.
00:04:00
Bill: Exactly. And then conversely, there are buyers who have the reputation for, we close on what we say.
00:04:08
Sean: Yeah.
00:04:08
Bill: So again, that comes with experience and skill. And so advising the seller on which offer to consider is really part of the art of what we’re doing.
00:04:20
Sean: Well, that’s been very helpful. Appreciate it, Bill. Thanks.
00:04:22
Bill: Great.
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