South Florida M&A Advisors Podcast
We are a team of highly experienced M&A advisors who specialize in offering bulge bracket like deal advisory services to lower middle-market companies across the United States and globally. Our team of experts have a deep understanding of the M&A process and a proven track record of successfully navigating complex transactions. Our focus is on delivering personalized, tailored solutions to meet the unique needs of each of our clients. Whether you are looking to buy or sell a business, or seeking guidance on a strategic financial decision, we have the expertise to help you achieve your goals.
To learn more visit: https://www.southfloridama.com/
contact (954) 646-7651
email: rcohen@southflorida,ma.com
South Florida M&A Advisors Podcast
EP #10: Strategic Insights for Selling Your Business
Unlock the secrets of successfully selling your business with insights straight from the trenches of mergers and acquisitions. Ever wondered how to find a buyer who truly respects your company’s culture and values? This episode promises to equip you with the essential knowledge to safeguard your business's legacy and protect your employees. We navigate the landscape of potential buyers, from private equity groups to strategic buyers and publicly traded companies, sharing compelling real-life examples of what happens when the match is just right—and the consequences when it isn’t.
As your hosts, we go into the operational challenges that can derail a sale, emphasizing the importance of being prepared. Learn from cautionary tales of buyers who failed due to lack of involvement and discover why having the right accounting practices and advisory team is pivotal. We spotlight the critical role of timely, specialized legal support, sharing how delays can jeopardize deals. Our approach to marketing and vetting potential buyers ensures that only serious inquiries come through, making your transition as smooth as possible. Get ready to arm yourself with expert strategies that turn the complexities of selling a business into a seamless process.
Welcome to the South Florida M&A Advisors Podcast, your trusted M&A team. Here's your host, Russell Cohen.
Speaker 2:Hello everyone. We are back. Russell, I am going to paint a nice pretty picture for you this morning. Are you ready? I'm ready, let's go. All right, let's party. So I'm a business owner. Been spent the last four decades toiling blood. Let's party, so I'm a business owner. I've been spent the last four decades toiling blood, sweat and tears. I built a successful business and now I'm approaching my twilight years. It's getting close to that retirement time and I'm thinking got to sell the business. Many questions are arising in my head, one of which, which is the topic of today's discussion, is how to find the right buyer for my business. Right, this is my baby as much as my children. Right, I've been with this, spent thousands and thousands of hours. I want to make sure that I'm turning it over to the right buyer, and obviously I get compensated accordingly for it. So what's the first thing that a business owner should consider when looking for the right buyer?
Speaker 3:You know, in the world of mergers and acquisitions there's going to be a few types of buyers that will be available to the business owner. If the business has an EBITDA of their earnings of, let's say, a million five minimum going higher. Let's call it 10 to 15 million middle market, lower middle market You're going to have some options. Majority of those buyers will be private equity groups, which are investors in the business. They're not coming in to run the business. They're going to expect the business owner to stay on, probably about two years and, if you're lucky, maybe a little shorter. But there's need to be someone that steps in. So private equity groups is probably your number one buyer.
Speaker 3:Your second buyer could be a strategic buyer. For example, I'm representing a plumbing contractor and naturally another plumbing contractor would be a strategic buyer. Or, let's say, an air conditioning contractor. That is a dual role, having multiple divisions. So a strategic buyer could be someone in the trades that would also buy that company, and the buyer might actually be someone in your company too. Be someone in your company too. I've seen many times where the person just under the owner might be that person to buy the company. They may not have the wherewithal to buy, but there might be some funding or getting additional partners and then, on a rare occasion, it could be a publicly traded company. And that's rare, but you must build something special for a publicly traded company to come your way. So when you're dealing with mergers and acquisitions, your buyer pool will not be an individual buyer, someone relocating from one area or someone that is just individually local. More than likely, the private equity group strategic buyer may be the top person in your company, right in front of you and a rare occasion publicly traded company.
Speaker 2:Lots of different factors to consider, and it's not all about the money. This probably is an obvious question, but I want to ask it anyway. Why is choosing the right buyer so critical for a business? Because again, somebody could come along and have all the resources available. So critical for a business? Because again, somebody could come along and have all the resources available. But as a business owner that built an empire over the last 40 years, I have thoughts about my legacy. Right, I want to ensure that the buyer is going to uphold the business's culture and the values, right, no doubt.
Speaker 3:What you typically find is high quality, owner, top notch business. They want to protect their employees. The owner can't do it without an incredible team and it's a team that's been with them for a long time. A business supports many families, so when I hear that a business owner wants to protect their employees and they do care about their legacy, they do care about their staff. They do want to see the business carry on to the next generation of owners and it's a tough decision because they've worked all these years and it's important to sell with a certain timeframe because eventually a business owner will take their eye off the prize as they get older and that's where the business value can go down. So it's important to pick the right buyer for the right situation. A lot of things have to align to make everything work, but it's a tough decision but it's well. The business owner gets rewarded multiple ways.
Speaker 2:You've been doing this quite some time. I wanted you to look back through the history of clients and look for some real life examples. Can you share a story, maybe, where you represented a seller and you found the perfect buyer and how that transaction went, in contrast with a situation where you found a buyer that maybe wasn't quite perfect and the deal maybe fell apart?
Speaker 3:Yeah, I was representing a real estate school that did continuing education online. It was an internet business approved by the state of Florida. The gentleman was a one-man band. He worked out of his home, made like a million five working out of his home. We found a publicly traded company, which is one of those rare circumstances that were doing a roll-up in the internet space. So they they bought his company and they were buying up other internet type companies. It worked out well because he was able to stay on for a couple years. He did not leave. He got a tremendous amount of stock, got a very substantial down payment and one year later he was able to sell a stock at a profit. Uh, and it worked out well because he was able to. He was still young enough where whole lifestyle wasn't really upset and he wasn't in retirement age, so it was important to him to get to a company that that could grow and build infrastructure, because he was just a one person doing everything but making a boatload of money. And that was really when continued education went online.
Speaker 3:Some unfortunate circumstances sometimes your deals don't work out where I was selling a site excavation company, new construction, and we had a buyer come from overseas and he had a green card and he butchered up the business and they had contracts with WCI, who's no longer in existence right now, but he just killed the business. So here a perfect example someone who'd been in business 30 years and, within two years, the buyer. It was the right decision at the time to sell the business to the buyer, but we thought the buyer was going to be operational in the business and he was trying to be hands-off. Yeah, so you just don't know. You just don't know. But in the M&A world, these investors are not coming to run the business. Everything stays status quo. If you built the right business, things should not get destroyed. If it ain't broke, don't fix it right. Yeah, just keep running it and keep the staff happy and pay them well, and they'll take care of you.
Speaker 2:So are there any red flags that you typically look for that a business owner should look for during negotiations with potential buyers to try to determine if this is the right party to take over their business?
Speaker 3:Everyone has to win. It can't be a one sided. If it's a one sided win, no one wins and the deal is not going to come together. The attorneys can.
Speaker 3:Really, time is the killer of deals basically in the M&A world and any type of business acquisition If your advisors are not on it. I'm on it, I'm working all the time, but sometimes attorneys are very slow to the punch. In my last M&A deal, we received an offer let's call it April 15th and the attorney didn't respond until June 1st 45 days, which is unheard of. So yeah, that's a red flag for me when the attorneys are not moving quick enough. I got to give the warning is your attorney an M&A attorney? Does this attorney have time to do the deal? I'm experiencing it right now where it took a few weeks for an attorney to respond to and I don't understand why it's so slow. Sometimes you got to light a fire. But yeah, I've noticed a lot of just really, that's a red flag to me when we have either the buyer's attorneys are just running up the tab or the seller's attorney is just not engaged enough.
Speaker 2:Yeah. So I want to dig in a little further into the role that you play as the advisor, as the business broker in the deal. Obviously, this should be a collaborative effort between the owner and yourself as the advisor. When you come into, what ways are you going about marketing to determine a pool of buyers? I know it varies for business, but what are you typically looking at? What resources are you using and how are you vetting the business owner once you find it? Walk us through your process of how you start this.
Speaker 3:Yeah, Once we meet with the owner, we like to sit down with our first meeting. Learn about the business, find out if they're really serious about selling, discuss about non-compete, maybe discuss about taxes, get them to prepare for this colonoscopy that they're going to be going through. Everything will be unturned. Unfortunately, you get into a quality of earnings and you're talking about pages and pages of requests from legal, accounting, insurance, medical, environmental. It's just, it's never ending due diligence. So they mentally have to be ready to really dig for information that they never thought they would have to dig for. But once we determine that the client is a real seller, we're going to dig into their numbers. We're going to get their P&Ls. We ask for the tax returns. But the private equity groups will just look at them, the QuickBooks and the P&Ls. They're looking really at the trailing 12 months of the business. Where is the business going this year? Downward trend, upward trend, stable.
Speaker 3:And we're preparing the business for sale, getting the executive summary organized, and we're trying to come out the market within four to six weeks after they engage. And while that's happening, we're preparing a buyer list from private equity groups and we are strategic buyers If you're going to have a successful M&A office, you got to probably invest 30 to 50 grand into the data sources to have the right ability to find the buyers. There's PitchBook, there's Tagnify, there's Private Equity Info, there's SourceGrove, Apolloio. These are all different subscriptions, that where I can really form a buyer list and go after. So we're not publicly listing the business for sale on a website. We are hitting predetermined buyers that we feel might be interested. So technically you're never really hitting the market and it's extremely confidential and every buyer has to sign a confidentiality. But all these private equity groups, they're not even local, so it's held confidential pretty easily compared to smaller business.
Speaker 2:Now, if you could give one piece of advice to a business owner out there that is at that place where the thought has entered their mind they're getting ready to sell, what would that be? What would be the first thing you'd want them to start thinking about before they enter into that process?
Speaker 3:Your books are not ready for what's going to happen. Okay.
Speaker 3:So, private equity works on gap accounting and small businesses don't. Revenue recognition on gap accounting is different than traditional accounting. Knowing that these private equities private equity are hiring a high prior to accounting firm to really unwind everything and I really mean unwind everything it would be two to three years, three years prior start forming your team. Make sure you got the right accounting CPA in place or CFO. Because if I get to a seller which I have right now where I'm helping someone sell and I'm looking at the balance sheet and there's negative numbers on the balance sheet, okay, now we know the QuickBooks are not ready. So then we got to get a CFO and unwind your QuickBooks and get it cleaned up to make a private equity ready. That could get expensive. So if you're doing this a couple of years in advance, you get a top-notch, quality CFO. Make sure your staff is really capable. If your QuickBooks is not clean, you're going to have problems.
Speaker 3:So, yeah, advanced preparation. If you don't own the real estate and you have a lease, get your lease in order. If you have personal guarantees with vendors, try to get your name off the personal guarantees. If you have contracts, if it's assignable, see if the contracts are assignable. A lot of times the private equity groups buy the stock, so they'll actually buy your corporation. Get contracts renewed, make sure they're long-term. Anything that presents a high risk can affect the valuation. So if you spend time in advance, years in advance, prepare the business for sale, you're going to win at the end of the day, you hear that everyone Get your house in order.
Speaker 2:No doubt so key. What is maybe the most overlooked factor that you've seen when it comes to choosing the right buyer? It's an emotional ride.
Speaker 3:So these buyers will come in and they'll talk a really good game. And if you fall in love with a buyer which is great make sure you take care of yourself first. Make sure there's enough down payment so when you're sitting at the closing table you're happy about the sale. That's most important because there's a tax situation, there's a commission, there's an attorney bill, there's lots of different types of holdbacks in an M&A deal. So you might fall in love with a buyer, but when you start looking at that closing statement, then you got hard palpitations. Okay, okay, because what you think you're getting.
Speaker 3:And then, after you unwind, after all the fees, okay, make sure you take care of yourself first, because you're selling for your income. You now don't have any income, so now you get this lump sum of money you got invested correctly and this is the income you're going to live off for the rest of your life, assuming, obviously, of other investments. Hopefully that would help. So this is an important decision. Take care of yourself, take care of your employees. Hopefully that would help. So this is an important decision. Take care of yourself, take care of your employees Legacy will live on and just make sure it's the right deal so you don't freak out or try to back out at the tail end of the deal.
Speaker 2:As we're diving deeper into 2025, are there any trends that you've been seeing in the market that are impacting how sellers should evaluate buyers, the trends, the multiples are not on an upward trend.
Speaker 3:Listen, you hold the deck of cards, no-transcript. We're going to be able to create enough stir, an auction process, a structured transaction where we're going to have multiple offers competing against each other and some private equity groups and some private companies will sprinkle an earn out, will sprinkle a rollover equity into the deal. So there's lots of ways to structure the deal on top of that cash at closing. Trends of the multiples are going down because of the economy and the higher interest rates, but we can still get a lot of offers at the same time. So you could pick the right buyer and negotiate the right deal that works for you. But obviously, better economy, more free flowing money, better multiples Probably if interest rates go down, that helps. If it goes up, it does not help. How the global economy will definitely affect how private equity works, but there's definitely a lot of money out there still ready to deploy and buyers that want to buy. We're in a very good seller's market. It is a seller's market if you have a high profit making business, no doubt.
Speaker 2:Indeed, and you just need the right team behind you.
Speaker 3:Very important to get the professionals behind you that will help you decide what's the right deal. Low pressure just be your consultant. Let's find the right situation for your time in your life.
Speaker 2:Absolutely. Was there anything else that we missed that you'd like to touch upon before we wrap this up?
Speaker 3:I think we covered it really good. I mean, the number one thing is business owners don't prepare their business for sale. If more business owners did that, they will get a bigger cash out position and they'll be able to negotiate better. So get your house in order, get your consultants in line, look at your leases, look at your contracts, look at your vendors. Don't don't have concentration in vendors. Just put yourself in the shoes of the buyer looking at your company. Would you buy your company if you had a lot of money at risk? That is a very important point to know.
Speaker 2:Yeah, good question to ask for sure. All right, everyone. Thank you so much for tuning in. If you are listening to this and you've gone through this process and you've sold the business, please leave a comment below. Let us know about your experience. And if you're looking to sell your business, leave a comment. Let us know what type of business that is. And feel free to reach out to Russell anytime. He is obviously a wealth of knowledge. He is here to help in any way possible, help guide you through this process. So don't go at it alone. Stay educated. Losing my train of thought here at the end, russell, oh my goodness, what are we doing?
Speaker 3:Educated. You got to be educated because you are work. The buyers are professional buyers. They do this for a living and you're stepping into the world for the first time and you're going against professional buyers. So get help. You need help. You'll understand when you get in the process. It's a process that you would only want to go through once.
Speaker 2:All right, sounds good. Again, everyone thanks for tuning in and we will catch everyone next time on the next episode of the South Florida M&A Advisors Podcast. Everyone, take care, have a great day and stay blessed. Bye-bye, take care.
Speaker 1:Thanks for listening to the South Florida M&A Advisors Podcast. For more information, visit southfloridamacom or contact 954-646-7651.