How to Sell Your Company with UBS Exit Advisor Steve DeMatteo

Experienced Voices's guest Steve DeMatteo is a Wealth Advisor, Certified Exit Planning Advisor®, and Forbes Best-in-State Wealth Advisor. 

In this HOW-TO segment Steven breaks down what owners need to know before they sell. With an MBA in finance and deep experience guiding business owners and executives through growth, sale, and IPOs, Steve answers the question he hears most often: Is now the right time to sell and how should I prepare?

From Mom & Pop shops to built-to-sell ventures and long-established companies, Steve shares:

• What makes a business valuable in today’s M&A market
• The “4 Ds” that can force or accelerate an exit
• Who’s involved at every stage of a sale—from planning to post-close
• How valuations are done and whether you can pre-screen your sale potential
• Why even a failing company’s database can be a hidden goldmine

If you’re a founder or executive contemplating an exit—or just want to maximize your company’s future value—don't miss Steve’s insights that make the sale of a business successful. 

Transcript

Steve DeMatteo

[00:00:00] Jeanne Gray: I am Jean Gray, publisher of American Entrepreneurship Today and host of the podcast series Experience Voices, where I talk with highly accomplished people who share the critical elements that led to their success.

I am pleased to welcome Steven DeMaio Wealth Advisor and certified Exit Planning Advisor as our guest on the how to segment of our Experienced Voices podcast. Steven is based in San Diego as part of the UBS signature team and was recognized by Forbes Magazine as a best in state wealth advisor.

Steven takes entrepreneurs and business owners through the fundamental steps of how to sell a company.

 Welcome to Experienced Voices, Steven. 

[00:00:49] Steven DeMatteo: Thank you Jeanne. It's wonderful to be here. 

[00:00:52] Jeanne Gray: Well, you've got a great background for us to discuss how a business owner should sell their company. So let's start with what are the types of businesses that are sold? 

[00:01:04] Steven DeMatteo: Well, we really see three types of businesses that are in preparation for being sold.

The first is what we would call a mom and pop type business. And that might be local business or a business that's grown over time, more regionally that started by a, family , by a, intergenerational family. And is grown and is now trying to consider how to pass that business along, either through its family or through something external.

Next we see a build to sell type of business and that's typically founded around an idea or a concept by an entrepreneur or a team of entrepreneurs. And they would like to build that idea for the intent of selling it upstream or to a competitor or to another vertical. And finally we see a business that exists as more of a lifestyle business.

Where they continue to provide a good or service over a course of a period of time, more of a going concern, and then at some point it becomes time to sell usually through one of the four Ds that are a triggering event for business sale. 

[00:02:14] Jeanne Gray: So before we go on to some of the triggering events in today's economy or , in the sort of innovation ecosystem, a lot of companies are being built around databases.

But some of them may not make it. Do they have value in those databases for their company to be sold in a very specific way? 

[00:02:35] Steven DeMatteo: Sure. Data is king in this environment particularly in, the world of ai. And in the growing world of ai the ability to harness, capture, distribute, and exploit in a positive way, data.

Is key to a company's valuation. So companies are keen on that and many times they're building ecosystems around collecting data, which in turn can be sold. 

[00:02:59] Jeanne Gray: Okay. So let's talk a little bit about the triggering events that sometimes it's planned, but sometimes it's not. So share a little bit about, I think you were calling it the four Ds as to what triggers a potential sale.

[00:03:13] Steven DeMatteo: Yeah, the four D, that's something that planners are accustomed to and some of them are inevitable. So let's start with that. First of all is death. Everybody's gonna part from their business at some point. But we don't know when our, time is up. So planning ahead of such an event obviously makes sense.

The other three are a little less predictable. We see business transactions happening because of disagreements between business owners and suddenly that functional relationship has expired and it's time to move on and consider another solution. Disability can be another one. Business owner has a health event.

And suddenly their ability to lead that company is diminished and it's necessary for them to look for another alternative to them as the leader of that company. And finally, divorce can happen. And if it's a family owned business. If an owner is a primary primary shareholder of that business, sometimes the ownership of that business gets called into question and needs to be divided, and so those would be the four Ds, death, disagreement, disability, and divorce.

[00:04:23] Jeanne Gray: So let's talk about the individuals or the parties that become involved in helping the business owner make the sale. And then we can discuss, and even maybe you could note if they're involved in different stages. Like for instance, maybe a party's more involved in preparing. The business for sale, but another party might be critical for executing the sale.

So, , who's the team? Who's part of the team that the business owner needs to know will be involved in this process? 

[00:04:54] Steven DeMatteo: That's a great question, Jeanne, and, many of the answers today are gonna say it depends on the size and the scope of the business. But I think this is one that has many threads that connect through different .

Businesses, regardless of their size and of their scope. It's important to put your team together early. In many cases, that would involve attorneys business transaction attorneys, estate planning attorneys, in some cases in intellectual property attorneys. It would involve a CPA particularly a CPA that focuses on business transactions.

They can be more strategically minded and help structure a sale or preparation for a sale to be as tax friendly as possible. Financial advisors, particularly a financial planner, can help model different scenarios for the business owner to show what the different outcomes would look like at different price points, help model different taxable events that happened during the course of the transaction, as well as model some shareable gifting strategies and, and tax avoidance strategies alongside that team.

I'd say that that's your core group of team members.  You would have. A business broker or a m and a advisor, an investment banker, depending on the size of your business, and they're gonna be critical to not only helping you prepare for the sale by cleaning up some internal processes, making sure you look as best as you can for due diligence, but also for putting together your marketing package and taking your business to the market, and ultimately getting the best deal that they can in the marketplace.

Alongside , that core team, you're gonna have some business consultants that may get in and help you optimize the processes internal to your business. Operational processes, financial processes. You may have some fractional CFOs that come in, some fractional COOs, depending on how your business is structured.

But generally speaking, that's your core team.

[00:06:53] Jeanne Gray: Is it reasonable to expect? 'cause the owner depending upon the size as you mentioned, may be loyal to the company attorney or the longtime accountant. Does the owner really need to. Make sure that he's not, or he or she's not staying loyal to those who \ , have been involved in the business to date and need to go to the experts who specialize in the transaction.

[00:07:26] Steven DeMatteo: I think loyalty is wonderful in any aspect of business, and if those loyal advisors can serve the business owner , in their current capacity, then I think that's ideal because in many cases, those legacy advisors know, quote unquote, where the bodies are buried. They know that the good parts of the business, they know the parts of the business that they've been trying to clean up for a number of years.

And they know, you know, the not so great parts of the business. So in many cases, those, those advisors are just fine. I think acting in a fiduciary standpoint and doing the best for the client, for the business owner, they should also identify when would be time for them to seek some help. , and look more broadly into their advisory role to see if they're the best fit for the current situation.

[00:08:13] Jeanne Gray: So it takes a little bit of planning to do virtually everything. Well, how much should a owner expect in anticipation of a sale, that there may be changes that are required? Specifically maybe to the balance sheet of the income statement because the company has been privately held and now it needs to be, so to say, dressed up for the, potential purchaser.

[00:08:41] Steven DeMatteo: That's a great question and, and many times I use a real estate analogy. Bring it home for people who are selling a business for a first time or really questioning the complexity of, of a business transaction. Many people, most people have bought or sold a home at some point in their life when it comes time to selling their business.

And they understand the idea of putting on a fresh coat of paint and sprucing up the landscaping in order to give your home more marketability. It's something very similar inside of your business. I think few businesses actually run their business in preparation for being sold. They run their business as they've always run their business, particularly as you get into the more mom and pop type of businesses.

So it's vital to have somebody come in from the outside, either through your investment banking team or business brokers team. Or through hiring a practice consultant to take a look and see how modern your business is and if it truly is as marketable as you think it is. And it may be that there are some streamlining of operational processes.

It may be some financial landscaping that needs to be done in order to make your business more marketable and get the best and highest value for it. 

[00:09:55] Jeanne Gray: Now again, we're speaking in broad terms as far as size of the company, but you know, especially when you know that balance sheets and income statements while they're generated quarterly and annually, how far in advance is a reasonable period of time for the owner to plan for the sale so that things are done right?

I mean, I'm, I would say, you know, in the extreme, you don't sell a company in two weeks. But are you talking a couple of years or somewhere between? 

[00:10:28] Steven DeMatteo: More on the couple of years side. So particularly from a planner standpoint, longer is better. 24 to 36 months is ideal. I can also tell you from a practical standpoint, rarely happens that way, but that would be something that , we would love to see and as a planning team, would love to have time.

On our side in order to best position the business. We also say good exit planning is good business planning. So if you're trying to position your business for its highest possible value, you're likely doing things that are benefiting your business along the way, and so we don't have to look at it in two different lights.

If you're preparing your business for sale and you want to realize the highest valuation for your business. And in many times you're, doing things and spending money on, changes that are going to improve your business in the short term as well. 

[00:11:22] Jeanne Gray: Now, the owner's trying to get the highest purchase price possible, but when that purchase occurs, then the second step has to entail how is it impacting the individual's own?

Tax liability or, future net worth, where does that come into play? , does that run parallel with the planning of the company's sale, or is it part of the very early stages? The very first few questions that someone poses a question to the owners to get a take on where they wanna be after the sale.

[00:12:03] Steven DeMatteo: That's a great question. It is a concurrent process with the transaction negotiations and the sale of the business. , a business transaction is a very dynamic process from the very beginning to the, \ celebratory dinner that you have at the end. And along that way there's gonna be different.

Buyers that come and go, there's going to be different offers on the table different terms for those offers at different prices. And so that financial modeling can be a very useful tool to focus on the business owner's goals and what the ultimate outcome that they'd like to achieve from the business transaction.

And by going through a financial modeling process, you can really drill down to the best outcome. To achieve the goals that you're setting out to achieve. And in many cases, that's not the highest price. It could be a lower price with better terms. It could be, , \ the lower price with more favorable employment conditions for the owner who's looking to separate.

So in, in each of those cases, you would model the different. Offers that are on the table and all the different scenarios, and the business owner would have a clearer idea of what an acceptable offer would be. 

[00:13:18] Jeanne Gray: , , that's really interesting point about what you're saying about better terms, because 

blindly, I would think is it's all about the highest dollar amount at the end of the day. But then thinking about it, there are long-term employees that have been with the company and the purchaser may want those employees to continue on. Some may have a desire to leave or to gain something from the sale.

So is there a, a checklist of terms that then. Impact , the final sale price you mentioned. One of them is the personnel. 

[00:13:58] Steven DeMatteo: That's key, particularly for the business owner and what their personal goals are. In many cases, a business owner will wanna sell the business and.

Continue on for a period of time to continue to accrete value from that business, from perhaps a future transaction , or rolling forward some equity. In other cases, the business owner is burnt out and they would like to leave operating the business or their affiliation with the business as soon as possible.

And so it's really clear for that business owner to understand what their intentions are. And what's realistic. And I think that's part of that operational efficiency that can occur before the business even goes to market. How do you remove the business owner from the day-to-day operations? Is that difficult or is it as simple as hiring a general manager to do the day-to-day operations?

And that could be somebody that continues forward through the transaction, allowing the business owner to step away. So those are key questions and a good. Investment banker, qualified business broker is gonna take the time to ask those questions and understand what's the primary concern for the business owner.

[00:15:10] Jeanne Gray: Is there a due diligence step in the process from the point of view of the purchaser? 

[00:15:17] Steven DeMatteo: Absolutely. Absolutely. It can be very invasive. It can be a, big distraction from the day-to-day operations of running the business. At the end of the day, it's so that they can dust understand , what that business looks like after the change of control.

And so again, with proper preparation, the business owner can be. in the best position to go through that due diligence, and that's where a team member, like a fractional CFO would step in, or a business coach would step in to help optimize those processes prior to going to market even, but certainly prior to entering into a negotiation for a transaction.

[00:15:58] Jeanne Gray: Well, it seems good preparation avoids a lot of headaches in the later stage, but can you give a couple of examples where something unforeseen occurs either during due diligence that makes the purchase or walk away or even before up to the point of where the contracts are signed? 

[00:16:20] Steven DeMatteo: Absolutely.

I think , although it's moving into the distant past. COVID was a big unforeseen circumstance and suddenly that ground the m and a market to a halt because nobody knew what was going to happen. We didn't know what businesses would be able to function. We didn't know the viability of the economy really at that point.

So not only to mention that liquidity markets were frozen, so not only are businesses in question about. They're continuing operations, but purchasers, buyers are wondering how they're gonna finance transactions. So, you know, that was a more of a, black swan event, something that was unexpected in the near term.

I think slow down is in sales due to a variety of conditions, either uncertainty with a macro environment are really what we see more. Frequently as we go through business transactions. So a business enters into a negotiation with a certain assumption of profitability and then due to unforeseen circumstances, could be a weather event, depending on the business, could be a supply chain issue.

Suddenly that profitability is not what it looks like three months later when the due diligence is being held. And then we have to go through and renegotiate the transaction. 

[00:17:38] Jeanne Gray: And how about fees? , you listed, , at least a handful of parties that could end up having their, finger in the transaction.

Now, of course, if we're, talking for a large corporation type of situation, but what about the, the company that's on the smaller side, say 10 or 20 million in revenue? Are the fees for all these different parties pretty much standard in practice, X percentage or X amount of budget hours? What would a smaller owner anticipate?

How to flush out the fees associated with each of the parties? 

[00:18:16] Steven DeMatteo: That's a great question and there really needs to be transparency from all parties that are involved. , in my opinion, it's their responsibility to make sure the business owner understands how their services are being paid for.

Some are paid for along the way such as a consultant or a fractional CFO. Some are paid up front. Sometimes for marketing purposes for an investment bank. And then certainly there are some fees for the transaction upon closing, typically from the investment bank or the business broker. So, transparency is key. It's very important for the business owner to understand how those different moving parts fit together, what the costs are, and ultimately what the impact on the transaction is going to be. Nobody wants to pay for something that they're not realizing value for, and in many cases, these processes and these improvements, while they do have a cost, actually add value to the final transaction.

And so those, that's where the business owner should be focused. What am I paying and what's the impact on the transaction's value? 

[00:19:20] Jeanne Gray: So where does the owner start in terms of choosing the final team? They usually interview a couple of different parties for each role. They seek out referrals from other people in the industry.

[00:19:38] Steven DeMatteo: Both. Usually it starts with what we would call a quarterback of that team. Somebody that's been working with the business owner for a long period of time. It could be A-A-C-P-A or a financial advisor or a business attorney. And that's where the conversation, that's where the light bulb first goes on.

 And from there, the team is usually built out, either through referral. Or through other relationships or like you suggest maybe through interviewing several different parties to find which one fits their needs the best, 

[00:20:08] Jeanne Gray: and before they proceed to sort of , the real fine details, the owner typically is saying to various parties, so how much is my business worth?

So there are people who come in and they do a valuation. Do they do multiple valuations? Will an owner sometimes challenge the valuation? we could get 10 million for your company and the owner thinks it should be 20. 

[00:20:36] Steven DeMatteo: Yeah. Yeah. I would say there that there are a few different ways of looking at it.

Without getting into the weeds too much, I would say there's, you know, an accounting valuation that you can do. There's a comparable. Sort of like real estate, comparable valuation that you can do when you look at businesses that are similar that have sold recently. And then there's what the market will bear, and those can be three vastly different numbers.

what I would add is that business owners rarely have an accurate valuation of their business. And that doesn't mean that they overvalue it. In many cases they undervalue it. But it's important to go through a process that gives you. A reasonable starting point. And again, the, investment banker or a business broker will help you with that through some of the tools that they have.

And then from there, you can go to market. From what I've seen in my experience, what works best is to create some competitive pressure so that you actually receive multiple bids through your sale process. And if you can do that, then suddenly really figuring out , what the market will bear for your business most accurately.

[00:21:46] Jeanne Gray: So that means that the owner is hearing from someone in this process that there's a strategy , to get to a multiple bid process. , is that how you would sum it up? 

[00:21:58] Steven DeMatteo: Absolutely. Mm-hmm. 

[00:22:01] Jeanne Gray: Hopefully he does receive multiple offers , to make that decision relative to the terms that each of the parties may bring to the table.

[00:22:10] Steven DeMatteo: Correct. 

[00:22:12] Jeanne Gray: So we've covered really the key steps of selling a business, Steven. So what would be your final advice to a business owner who hasn't really investigated? A sale transaction before. And they now, whether it's a triggering event or something that they are looking, say two or three years down the road to say, I'm burnt out.

What would be your advice on how to proceed? 

[00:22:48] Steven DeMatteo: Well, there's really five key points first we've already discussed and that's start early. Many business owners underestimate the length of time and really the detail that goes into selling of their business. So the earlier you can start, the better both for the success of your business as well as for the potential outcome.

Next, I would encourage business owners to take a, long look at what your goals are. Why do you wanna sell your business? Are you being forced to sell it or are you selling under more opportunistic conditions? The better understanding that you have of your goals, the better deal you can structure for yourself and the more focused you can be on driving that outcome.

Next would be assembling your team of advisors early. We touched on this a little bit. Working with the right people at the right time is essential for a successful outcome. That team is gonna differ depending on the type of company that a business owner has and the type of outcome that they're seeking.

But generally speaking, it involves that list of professionals that I discussed earlier.

Next, I would reiterate that good business planning is good exit planning, and so ensure that your business can run without you, well before you're looking to go to market. Especially if you do not want to continue in the current operations of your business post-transaction.

Finally, I would say take a broader look at the timing, the macro economic conditions and what you want for your business's future. Many times keeping your business going for another year or two if the economy's in a tough spot or if there's some macroeconomic headwinds. Like high interest rates or an unpredictable policy environment, it may make more sense for you to wait a period of time rather than forcing your hand to go to market now and accepting what the market will bear.

[00:24:38] Jeanne Gray: Well, this has been great advice for someone who is considering the sale of their business and all the various factors that you've mentioned. They have to work their way through. So thank you for being a guest on Experience Voices, Steven, and I'm sure that people will value these different points as they're making some very serious decisions.

[00:25:03] Steven DeMatteo: Great. It's been my pleasure. Thank you for having me here today. 

[00:25:06] Jeanne Gray: You have been listening to the podcast series, experienced Voices. To hear more and subscribe, visit american entrepreneurship.com/podcast. Where you will also find a form for listener feedback.