With more than 30 years’ experience in M&A, Christopher Riley has seen his share of mistakes in dealmaking. One of the most common, according to Riley, is reaching out to an investment banker before the company is ready to sell.
“That's the last thing that you really should do when you're going to sell your business,” Riley says. “Unless you've already implemented what we call a strategic exit plan. The investment bankers are tremendous at what they do, but they can't improve the value of your business. So you have to get the value of your business where you believe it is going to be maximized in an exit.”
Riley said his group calls it being “acquisition attractive” before reaching out to an investment banker.
“They're going to put the CIM (Confidential Information Memorandum) together,” Riley says. “It's going to be out to auction and you're going to be presented with several opportunities. And if those numbers aren't where you want them to be, you should never initiate the process in the first place. So that's why we like to say, that's the last call once you're all prepared and ready to go.”
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Almost any M&A adviser will tell you it takes years to prepare for a sale, but Riley says that’s not always the case. When asked how long a business should prepare, Riley says it depends.
“The best answer is when you can pick that optimal timing of when your business is going to be most attractive to the marketplace,” he says. “So, if it's already there, if you've been killing it, and you're at the peak, well, then you should implement a transaction right away. So you may not need to do anything, you just need to package it up properly and let the investment bankers do their job.”
On the other hand, if the company has lost a step, or the pandemic has caused a lot of issues with your supply chain, you may need to reassess to get to that optimum value.
“If you need to get more reoccurring revenues, or you need to clean some things up with your business before you go to market, it could be six months, could be nine months, could be 24 months," he says. "If you're really in a gap and you've been running your business for 30 years, you don't want to take a 20 percent hit just because of bad timing of a pandemic. So you really should put a good growth plan together and get it back up before you implement a transaction.”
Riley spoke on the Smart Business Podcast about being prepared before approaching and investment banker. Hit play to catch the full conversation.