Have you ever had the goal of selling your business? When I began to build lifestyle businesses, I didn’t consider that I’d be able to sell them. Having recently completed an exit, I’d like to pass along some of my learnings so that you’ll have an outline, even if you’re not investor-backed or “huge.”
There’s no need to have all of these steps prepared before you begin. I was typically only one step ahead of the buyer in my process. While that felt a little hectic at times, it kept my pace quick and didn’t hold me up from getting started.
Is your company salable? Consider that there are a few typical reasons a buyer might acquire you (and in many cases, a buyer will see potential in a combination of these categories):
- Strategic acceleration: Your geographic footprint and/or category expansion gives them faster, more reliable access.
- Intellectual property/capabilities: You have technology that can be used for their consumer or by them as the creator.
- Talent: A way to hire by other means. They’d acquire your business to get talent or expertise they want. This could be short or long-term.
After considering which of these are what you have to offer and are competitive advantages, you’ll next create a list of target acquirers. For example, members of your current team, competitors, current customers, companies who want your customer base, private equity firms, and/or companies that haven’t expanded into your industry or customer base but would benefit from doing so.
Next, create a one-page executive summary and use graphics. You’ll include some high-level financials, data, your book of business, revenue, growth opportunities, team, and so on. Look back at the three levels of value creation above. Explain why it’s a strategic fit for them and share other metrics that will entice them to want to know more. The point of this document is to get them to book a call with you or your team to further discuss the opportunity.
Then, create a cold email template that you’ll use to reach out to everyone on your target list. It will read something like this:
Hi _____. Reaching out about an opportunity for a strategic acquisition of my company XYZ.
I’d love to connect with you (or the right person on your team) about potential interest.
A bit about the company (share what is relevant and enticing for your company):
It’s a great opportunity to get in front of _____ [your audience] with the potential to expand on _____ [areas of opportunity], which _______ [value of more traffic, sales, etc., to them].
I’ve attached a high-level executive summary for your review, as well.
If it sounds like a conversation worth having, let’s hop on a 15-minute call to speak in more detail.
A great resource to find accurate email addresses for your target list is Hunter.io. Create a spreadsheet or another tool to track your list and where you are in your outreach, follow-up, and conversations. Also, reach out to any companies with which you have direct access or can get a warm introduction using your outreach template.
You’ll begin to get bookings for initial exploratory calls from those who want to move to the next step of your process. Have those conversations and share, at minimum, the data you’ve shared so far, and use these calls to get to better understand their goals, priorities, and appetite for buying. Be open to answering questions, sharing your company story, why you’re ready to sell to a strategic buyer, where you see opportunities for them to benefit and grow because of a purchase, and next steps.
It’s important that going into these calls, you’re clear on what matters to you most when you sell. Do you care most about price? About the payment schedule (all upfront, seller-financed, tied to performance, etc.)? Will you and/or key team members be required to stay on and for how long? Do you care what they do with the company once they buy? I found it helpful to be clear on my top goals so that I could navigate and negotiate accordingly.
After those calls, those who want to continue the conversation will sign an NDA (non-disclosure agreement) and you’ll share your pitch deck. It’s advisable to set up an electronic signature and file-sharing platform that allows you to track opens and signatures. Then you can securely share the deck and your financials. They may want to offer their own NDA, but have a standard mutual one (not one-sided) on hand to offer.
The pitch deck should include your honest and candid overview of the company, history, team, data, financials (revenue, cost of goods sold, gross profit, etc.), opportunities for growth upon acquisition, what assets are for sale, and so on. Consider where they can reduce operating expenses based on redundancies and where there are new revenue streams into which they can tap. This is your opportunity to story-tell and explain the data you’re showing. The final slide should list what you need from them if they’re ready to make an offer, as well as the contact info for where to send that. Also, think about your positioning for each company and slightly shifting it for each to highlight their priorities.
Assemble or prepare your financial records for the past three years as well as a growth projection model and share that with the deck.
There are two options on how to proceed with the next step:
Handle each bidder’s timeline and process individually, or
Set up a bidding timeline. This means you get as many interested parties in the queue as you can, have them all sign NDAs and share the deck and financials at the same time, give them X weeks to review, talk with their internal stakeholders, ask questions, and offer a bid by your deadline.
How do you value your company? Valuation is both an art and a science. Start by finding any data around formulas at which your industry trades: for example, 4x gross revenue or 10x net revenue. Consider all value centers, not just revenue: What’s the value of your audience to them in their line of business? What’s the strategic value this brings to them? Ultimately, a company is worth what someone will pay for it. Decide for yourself what your bottom line is before you receive any offers.
When you get to the negotiation stage, here’s a tip: Say something like, “I’m not here to beat you. I want you to feel as though you won, and you’re excited.” Build the trust. In many cases, getting to the closing table isn’t the end of the relationship, so you want to truly build a trusting one.
In your conversations, be upfront about your pricing and other expectations (transition, timeline, whether you want to stay on board, payout, future of the company, the brand, the team, etc.). This is also why it’s important to have thought about this before you get to this stage.
When bidders come to the table, they’ll produce an IOI (indication of interest). This is a high-level email stating their intention to pursue an acquisition at a nonbinding structure and value. If you agree, deeper diligence conversations will then transpire. Share anything they ask for, because they’ve signed an NDA. There’s no reason to be mysterious at this point.
Next is a formal LOI (letter of intent). This is still nonbinding but is a legal document that is a more formal offer. It will include specific terms and how the offer works with no more generalities. The buyer might bypass IOI and LOI and just come back with an agreement that is formal and binding.
A purchase will either be a stock purchase agreement (SPA) or an asset purchase agreement (APA). You’ll be best served to discuss these with your attorney.
Another “light version” of an acquisition is a revenue share. This is a performance-based situation where you want to get out, so you’d say, “I have a great book of business and I’m willing to sell the customers to you. If you don’t want to do a full-out acquisition right away, you could pay me for any business that moves to your platform/company.” Then you’ll transition your customer base and membership over to them as customers and you’ll get paid a revenue share on those new customers for them. A hypothetical breakdown might be: Year 1: 70 percent to you. Year 2: Continue to get paid on year 1 and year 2 is at 35 percent. Year 3: Continue to get paid on years 1 and 2, and year 3 is at 25 percent. Then it ends after 3 years. Or, just sell the data for a flat price.
While there are a lot of ways to sell and value a business, if you follow this general process, you’ll look like a pro, be taken more seriously, and end up at the closing table with a deal about which both of you feel great. Happy selling!