The decision to sell your business is an important, but very small step in the actual transaction timeline, says UHY Corporate Finance Director Jeremy Falendysz. Prior to moving forward with any negotiation, Falendysz takes time to understand both the circumstances that led to this decision and the seller’s plans once a deal gets done.
“It certainly doesn’t do a buyer any good if we strike a good deal at a good value and the owner just has a change of heart at the end,” Falendysz says. “We’ll pause before we push forward until we really feel like the owner is ready to move on.”
Falendysz has 15 years of investment banking experience, having completed more than 60 corporate finance transactions and representing more than $60 billion in total transaction value. A big part of getting these transactions finished is helping sellers get to a place where they are truly ready to make a deal.
“In a lot of cases, the business is like a child in the family, and it’s a really emotional, difficult thing to go through,” he says.
In this Dealmaker Q&A, we spoke with Falendysz about factors that come into play when considering the sale of your business.
Where is a good place to start when thinking about selling your business?
Most business owners have been focused on building revenue, building cash flow and paying themselves a dividend or a distribution, which are all really important things. The challenge is that when you go to sell your company, you’ve had that singular focus on your business, and you don’t see it through the lens of the buyer. There are all kinds of things you can do to add a tremendous amount of value to your business in a sale, but you can only do so much when you’re looking to sell the business tomorrow.
The full transaction timeline can be five to 10 years, which is why I encourage business owners to have a relationship with at least one — and in some cases a couple of — investment bankers and deal attorneys, to be educating themselves much earlier, ideally before you’re even seriously thinking about selling your business.
What are some other challenges that sellers often face?
You’ve got a few psychological challenges along the way. The first is, simply, are you ready to sell? It never becomes more real than when you are about to sign the purchase agreement and will no longer be the majority owner of your business. We want to try to derisk that issue upfront as much as we can.
The other issue is when a buyer is doing diligence. They ask a lot of tough questions, but they are just trying to learn about the business. One of my colleagues said it best, which is, ‘You’ve got to be prepared as an owner for the new buyer, in the diligence process, to call your baby ugly.’ They’re not being offensive. They’re trying to understand things like how good of a relationship do you really have with your customers.
A lot of business owners become frustrated in the diligence process, so we’ll put together a list of requests that we know we’re going to get asked and go through and explain why buyers will ask certain questions. It still elicits some level of frustration, but I believe that it’s the investment banker’s job to make sure that we’re articulating why you’re getting asked these questions. When you do that, the seller starts to really understand and get more comfortable with that process. It’s just another example of some of the soft issues we encounter and some of the unique features of our job that are less focused on numbers.
Related: Sellers Are Often Their Own Worst Enemy In Maximizing Deal Value