The advice to business owners looking to exit is often to get the right advisers and plan well ahead of going to market. But for many, that's not always the reality.
"We deal with the business owners that don't get to talk to these guys," says Christopher Riley, CEO of United Cutwater. "We deal with business owners that have been working for 30 or 40 years, and they've got a family business and it's worth maybe $30 million, $40 million, $50 million. And they wake up one morning and say, it's time to sell our business."
People who take that approach often don't have an appreciation for what the selling process entails. He says years ago when he was in charge of one of his family assets that was being sold, he felt like he was "the sucker at the poker table." However, he was already well into the process with the investment bankers, and felt it was too late to change course. But that experience proved valuable.
"What I realized at that point was, there's a better way; there's a different way," Riley says. "From that point forward, I looked at everything from the perspective of the buyer. So, that's what I would say. The No. 1 thing, everything you do as a business owner, do from the perspective of the buyer. Because what is the definition of true valuation? The definition of true valuation is what the buyer is willing to pay for it. So, if you can find those, what we call acquisition-attractive components from the perspective of the buyer, then you've got yourself a deal."
Business owners, however, may balk at the exercise, however much easier it might make the sale process, in part because they don't feel they have the money for it. And that, he says, is where this process stops.
Another key, he said during the St. Louis Smart Business Dealmakers Conference, is getting the right investment banking group to help, one that knows where those buyers are going to be. He says it's important to identify investment banking groups that know where to find buyers that see the value that has been created, which helps a seller achieve optimum value.
However, just because an exiting business owner doesn't have a plan does not mean that their business lacks a significant differentiator that the market needs.
"They just haven't looked at that from that perspective, from those goggles of a buyer that would see their processes as highly significant, so some $500 million business would buy a $50 million manufacturing plant, and they would be able to save $50 million in year one," he says. "That's not what that business owner is thinking about."
Investment bankers, he says, are very good at what they do. However, business owners shouldn't call them until they're ready.
"The reason it doesn't happen is because people don't plan ahead of time," he says. "That's the real reason. If they were planning ahead of time, they would have all these advisers and everyone would know how to get that exit."
No one is going to stop the process once it's going because everybody — the company's competitors, all the key leaders in the business — know the owner is selling, which makes it almost impossible to stop that process and then make adjustments.
To evaluate the different exit options that a business ownership group might want to consider requires a conversation because everyone needs to be on the same page. Primarily, the group needs to consider where they are going. From there, it's about getting advisers involved and then cleaning up the business before heading to market.
But when companies are asking for money, one critical question to answer before seeking it out is why.
"Is good money going to turn into good money? Or is good money going to turn into bad? We actually do an assessment. We actually look at their business and we say, You know what, it might be time to pack it in. I don't think you can make it. And people don't like hearing that. But I'm not going to lie to a business owner," he says. "I wish someone would have told me that in way back in the day."
Another assessment he does is called the merger precision assessment. It goes through everything to give the business owner a sense of how long it will take to prepare the business and themselves for an exit.
Preparing for an exit means bringing in the right advisers, getting a unified vision and thinking like the buyer. But business owners also must consider life after business.
"So, the estate tax attorneys and the wealth management groups and the advisers, make sure you talk with the family members and that there are no surprises upon the sale," Riley says. "That's the last thing that you want is someone not knowing that this was going to happen, or so-and-so was going to get an extra $4 million on the deal. Get that done up front."