Chamber Chats | Navigating the Sale of a Privately Held Business

In this episode of Chamber Chats, we’re joined by Stanley Tobin, Sr. Director of Investment Banking at Young America Capital, to discuss what business owners need to know when preparing to sell a privately held business.

With more than 30 years of experience in financial services—including alternative investments, restructuring, direct lending, and investment banking—Stanley brings valuable insight into the financial and strategic considerations behind a successful business sale.

 In this episode, we explore:

• What typically motivates business owners to begin the sale process 
• The steps owners can take early to maximize business value 
• How confidentiality is protected throughout a transaction 
• What it looks like to maintain control during the process 
• Key stages of a successful sale and common pitfalls to avoid 

Whether you’re actively considering a sale, planning for the future, or simply interested in business strategy and succession planning, this episode offers practical guidance and expert perspective on navigating one of the most significant decisions a business owner can make.

Transcript

SPEAKER_03 0:12

In this episode of Chamber Chats, we're joined by Stanley Tobin, Senior Director of Investment Banking with Young America Capital. With over 30 years of experience, Stanley helps business owners navigate complex financial scenarios, and I'm so excited to learn more. Stanley, thank you for sitting down with us today.

SPEAKER_00 0:28

Thank you very much for having me. I'm happy to be here.

SPEAKER_03 0:31

Such a pleasure to have you join us. So many business owners think about selling at some point, but they often hesitate. What typically brings a sale into motion?

SPEAKER_00 0:40

Well, I think a business owner grows their business for many years. And at first they're not really thinking about selling it. All they're thinking about is making more money in the front door than they push out the back door. And over time they build it. Hopefully they bring family into it that can continue it. But in many cases, um the realities are that the legacy is not there for them to pass the business to. So they're in a situation where, you know, I've been putting all my money into the business, growing the business, and it makes me a great living. Uh, afforded my family a wonderful life. But there's actually a lot of equity in the business that has built up over time. And depending on what industry and what business and the supply and demand of those particular businesses at any given time, they have a huge asset. And uh, if it's well managed and uh prepared and so forth properly, they can, it's by far their most valuable asset. So at some point, uh many owners come to the decision that they really should consider selling. The issue for them at that point is it's a big unknown. It's very uh there are pitfalls to avoid. Most people, if they're lucky, sell one business uh in their lifetime, maybe two, maybe twice. So naturally uh there's making informed decisions about the whole process is something that maybe I can help with because I've done this a bunch. And uh, you know, buyers do it every month, every year, every month, every week sometimes. Right. So they've got a big advantage when they're sitting across the table from you. Um when they're the buyer and you're the seller. Obviously, it would be good to be a little bit prepared in terms of what to expect.

SPEAKER_03 2:26

And that's what your company does, right? So help me understand how you describe the work that you do to someone who's interested or considering selling their business.

SPEAKER_00 2:34

I work with an investment bank, you know, it's a regulated industry. I have securities licenses that allow me to advise people. Um we're uh Young America Capital in Mamarinick, New York. I actually live in Sarasota, not too far from here. Um, but what I'm able to do is really focus on MA, what they call MA, which is mergers and acquisitions. And the specific areas of MA that I focus on are uh businesses of a certain size and shape. Typically a business with five million in revenue on the low end, very low end, up to say 100 million in revenue, those are companies that are not gonna get the attention of uh Morgan Stanley or JP Morgan or Goldman Sachs. So uh you may have good accountants, uh, you may have great attorneys, both of which you're gonna need if you're gonna sell your business. Um, but they of course also may not be as well versed, although many of them are extremely well-versed, uh, in terms of just how the sale process typically runs and what the how to do it right, I guess.

SPEAKER_03 3:38

Okay. And then so if someone's considering this and they're saying, you know, I think I'm gonna see this opportunity for myself down the road, what are some things they can begin doing today to maximize that value as they approach uh an interested sale?

SPEAKER_00 3:50

Aaron Powell That's a really good point that you bring up because one of the mistakes you can make is wait, wait, wait until you have no choice because the buyers are going to ask always, why is the seller selling? Why are you selling? And what you don't want to have is a situation where you are more or less in a situation where you have no choice. You have to sell. Um, because obviously your options are limited, so they're not going to be quite as aggressive about pricing your business. So one of the things to really think about, even though you're there very comfortable in your business now, and if it's profitable, that's fantastic. Uh, but the thing to really think about is to prepare ahead of time. And that would include having a very good accountant, and the best would be to have your numbers audited. That makes you really attractive and shows uh buyers that you are, you know, a well-organized, well-run business. Um, having a very good relationship or just a relationship with a good corporate attorney is a good idea. And I would absolutely have a conversation with them, just like you might have with someone like me, which means to talk about it at a high level before it happens so that you are on the same page about how the process is going to work. Um but you want to be discreet, you know, you don't want to necessarily let your customers or your employees or your competitors know that you're thinking about selling. But if you're in a situation where the market knows that you must sell for whatever reason because there's an illness or a death or um some perhaps distress in the business, those are things that those things travel, it's a small community, business community. Everybody knows your status. So it's best to, even if you're not necessarily thinking about selling, perhaps just to have an overview conversation, high-level conversation about how does it work and what should I do.

SPEAKER_03 5:43

And I'd imagine that confidentiality is a high concern for a lot of sellers. Do you have advice on how to protect confidentiality or maybe what you do with the companies that you work with?

SPEAKER_00 5:52

Yeah, I would say uh the most confidentiality is always important for lots of reasons to business owners, which they all well understand. But the way that we typically maintain confidentiality is when we do a sale process, when we manage that process, we basically are sitting in the middle as I guess a broker and the I don't like to be called a business broker, that's what a lot of people call themselves, but uh as a sort of a broker between the company's internal information, strengths and weaknesses assessment, and on the other side doing the deep research to determine who the most likely interested, most interested buyers are, the candidates, if you will, to buy the company. Uh so we do a lot of research on both sides. We want to know everything about the company and we want to know what their market is, how their strengths and weaknesses compare to the marketplace. And but to answer your question, um we maintain confidentiality by coming up with a very succinct message and then attaching to that message. It's an email typically, and we have very expensive databases with which we can reach these prospective buyers that we're going to address. And what we typically do is attach a non-disclosure agreement to that. And uh, we say maybe five bullet points about this business. Uh, the business they're in, their strengths, their size in terms of revenue, um, years in business, things that, number of employees, these are things that uh particularly focusing on some of their specializations if they have them. These are things that a buyer can look at in a minute and say, okay, I need to know more about that. And obviously the geographic location or region, not the exact location, because we want to be discreet, but the region is also important. But attached to that, which is more or less casting, like you're fishing, you're throwing out a thousand casts to businesses that actually are strategically in the business, meaning they do the same business, so they may be interested in acquiring your territory, your customers, if not your expertise, that may be a little different from what they have. And then the second large set of buyers are financial buyers, which are private equity firms. And financial buyers uh typically specialize in an industry, so they're very knowledgeable about a business and the competitives and so forth, as are the strategics, obviously. But we do want to maintain confidentiality, so we typically ask them to sign a confidentiality agreement, a legally binding agreement that says any information that goes back and forth between us on both sides is to remain confidential for two years. Sometimes they negotiate that down. Uh, sometimes they can't. It's up to how we feel about them, certainly.

SPEAKER_03 8:32

Sure. Well, it's really nice because you're right. I think that kind of overcomes a seller's concern when it comes to confidentiality. And then how does a business owner know that they are going to be in control in this process?

SPEAKER_00 8:41

Aaron Powell It's a very good question, and it does segue into that because uh an NDA gives you some degree of control of your information, even though a lot of people don't have a tremendous amount of faith in them they should, because I've never seen one be violated myself in doing this for this banking business for 12 years. Um but at every step of this process, the business owner or seller, perspective seller should have control. And what that means is every piece of information that we put together, we help them structure a what maybe called a CIM or confidential info memorandum, which is basically a presentation that tells a particular buyer a lot more about the business than the five bullet points. So this is going to tell you who they are, where they're located, all about them and what their strengths are, and present them in the most positive light with pictures and perhaps org charts and things like that. Okay. Uh historical things. Um, so we work on that with them so that they're comfortable with what we're saying about their business. We also uh obviously do a lot of work with databases, as I mentioned, on finding out who the most likely buyers are. And we discuss that in detail with the sellers. We give them the overview of the list that we're putting together. And they often lots of times the buyers themselves have very good relationships that they know might be a very good fit for them to sell to. In other words, they may be a good fit for that particular group of companies that they're aware of. Some of them are competitors, so they're that's where it gets tricky. You know, do I want to let my big competitor know that I may be selling even if there is a confidential agreement? So sometimes there's decisions to make about that. But at every step, when we send out that email, it gets someone's attention. Let's say we send 400 of these out in a geographic region or to the strategics that are of a size and shape and business position that this might synergistically fit well with in our thoughts. Um and by the way, when you do this process, if the seller has relationships that have asked him, hey, I'd love to buy your business, here's why it's a good idea to run a process like this or to even consider it, because if that seller knows confidentially from you that you are running a process, they're going to have to, not to use bad language, but they're gonna have to, well, they're gonna have to get off the pot. You know what I mean? They're gonna have to move or get off the pot.

SPEAKER_01 11:05

Got it.

SPEAKER_00 11:06

So um when they know there may be all of a sudden seven or eight other competing bids, so they may say, okay, if I want to buy this business, I've got to make a move and be friendly and aggressive about it. So anyway, um to give the buyer control, though, we obviously go over who we're gonna send this to. We make sure we don't send it to anybody that the seller, excuse me, the seller is uncomfortable showing this to. So um, and so they have control over that. When the NDAs get returned, they get 20 non-disclosure agreements back saying we are interested in getting the information that's available on this company. Um they have the option at every opportunity or every case in every case to say, I just am not comfortable talking to them, at least not now. Let's go for these five first because they make the most sense to me. So they have control over who we take that step with. Um, and in having that control, I give them a lot of information about the particular NDA. Who is this person, this business that wants to talk to you? How big are they? Do they have the wherewithal to do this transaction? Do they have a good reputation? Do you know them competitively in the marketplace? Are they good people? Do you like them? Um just because the this seller is gonna have a lot of that. He's gonna understand, but I'm gonna give them very detailed financial information and any other information that I have access to to really help them contemplate which ones am I most interested in. Okay. Um so what I'll do then is organize a Zoom call. We'll send them the information. They generally send back questions after they get this presentation, which can be an executive summary, can be a one-pager, typically though, you know, it's at least 12 pages of uh information. Or it could be a much more formal memorandum that is really vetted and printed with much much more depth. Um, at this level, though, that's not typical. I'd say 50 million and up, you might have a little bit more of revenue and up, you might have a little bit more detailed information. But having said that, um the seller has control over everyone that you talk to. And with every interview, they get it's as much them interviewing the potential buyer as it is the buyer interviewing the seller. All that first meeting is, which is typically a Zoom, sometimes it may be face-to-face at a conference room. Um, but typically it's a Zoom because it's confidential and people don't want to use a lot of time if they're not necessarily interested. So in a uh Google Meet or Zoom call conference, video conference, uh, you sit down for a half hour, no more than a half hour, you get to know each other and talk, and mostly the seller gets to talk about their business. Um, why are they selling, a little bit about the business's niche positioning, uh, the area, anything. And then the buyer obviously will start asking questions because they're interested in coming at it from their own angle, as well as they want to know an overview of the business, how many employees, what's the best thing about your company, how long have you been in business, those things, just what kind of guy or woman are you that's selling? Um and then the the buyer's usually gonna come in with some pretty good hardball questions. Um but usually there's a vibe that's created on that call and on both sides. The buyer says, I like this, we need to get involved here and be aggressive. That would be the best response. Or they may say, I just don't see it as a fit. I'm I'm they may even say I'm not impressed with the individual's personality, the woman or man's personality. And then the seller has to say, you know what, I could see that. I could see them being good. I like their disposition, I like their sense of humor, uh, I like their approach, et cetera, et cetera. So hopefully there's chemistry. Chemistry is what it's all about, and that's why it's a hard business. For me, it's a hard business. Um, because you the the odds of success going all the way to the finish line sometimes are a little long. Yeah, it's kind of like a match matchmaking process, right? But anyway, so they have control, the buyer has control, and then they do the interview, the buyer gets to say which ones I really liked and which ones I didn't care for. Um so they are still excuse me, the seller. I apologize. The seller has control at each step of the way. Who are we gonna take a next step with? Are we gonna answer the questions that they're asking? Even if so, let's get detailed answers back to them as soon as we can. Okay. And then who are we gonna meet? Who are we gonna actually meet face to face? And at some point you get to the point where you've gone, and typically, by the way, the time frame on this, you know, I'd say a month to two months to get to get the initial research done and the creation of the presentation as well. Lots of times companies have their own materials, so that can be fairly quick, and then we edit it. Um, but between preparing the memorandums and uh for putting together the prospective list of emails that you're gonna send out, the outreach, if you will, typically that can be done in one to two months. And then when the email goes out, you will have responses within two weeks, three to four weeks on the outside. But by the time four weeks have gone by, you have found something out, and that is what is the interest level in your company based on the size of it, the business it's in, the history of it, uh, and the numbers. Um so that gives you control at every as we were talking about phase. When I I have control over who I meet, who I send information to, I have control over who I respond to and meet with, I have control over who I actually bring in to give me a bid. And within six weeks, I should have bids, four weeks, usually. Usually it doesn't take that long. Now, if I also find out, here's let me take a step back though and say about this process, if you don't mind, that it is not just about you selling your business. I mean, you may be on the fence about selling your business. Just because you get into this does not mean you're obligated to do anything. But what you will come out of this process with is a very good idea, uh, a wealth of information about how your business is viewed in the marketplace. Now you may be very confident, well, my business is very strong, and it probably is. But I did a deal last year where I sold a construction company that did excavation mostly for data centers, you know, for what are called hyperscale tier four data centers. And I sent out uh 600 uh, I don't think I sent that, maybe 400 to 500 emails in this outreach, and I got 200 non-disclosure agreements back for one business. Wow. So obviously he was in a very what you'd call a hot space. Um and then we eventually got eight different uh bids or offers, formal offers, and an offer by an offer, I'm talking about a letter of intent.

SPEAKER_02 17:55

Okay.

SPEAKER_00 17:56

So that was a situation where we knew right away that his expertise was uh sought after at this time. Um and then there are other times when we may go and do five or six interviews uh and no one makes an offer, but we get information from each one of them about what their thoughts are about the business. What is it that is making them not want to submit an offer? Um we usually though get an offer. We don't we rarely do a process where we don't get at least a couple of offers. But um typically we have you know five to ten offers, which is good because each of them knows it's a bit of a competitive process. Yep. The mistake sometimes that business sellers make is they sit down across the table from one entity that is interested in buying them, but they never go out and talk to anybody else. And you run the risk of that person playing a better game of poker than you. Yeah, you run the risk of underselling yourself. Sure. So, and by the way, the way to keep that person honest is to hire, you know, a bank, an advisor, an MA advisor. Uh so anyway, I don't know if I did I think that's a good idea. Yeah, so you kind of thank you, Stanley.

SPEAKER_03 19:09

You walked us through how to set yourself up for success from a profitability perspective, how to engage an agency like yours that can create that matchmaking. We understand the bid process, and then let's say it's successful. A match is made, uh, offer is accepted. Talk to me about that that closing timeline. Are there costs to be anticipating, maybe that last year?

SPEAKER_00 19:26

Yeah, I think the cost is a good thing to talk about. Um, you know, it it's obviously uh there's a lot of work involved. There's a considerable amount of time, and one of the things that I try to do for sellers is minimize the amount of time that they actually have to think about this. In other words, I'm not gonna allow them to talk to anybody that is not thoroughly vetted, that doesn't have the wherewithal and the presence to be a worthy candidate. So, and then I try to organize that presentation or those meetings. I'm gonna manage all these meetings, I'm gonna oversee the question and answer and just make sure things run smoothly and everything is kept track of for the seller. Right. Because again, this is kind of daunting because they do this maybe once, twice, and if they're really good three times in their life, they sell businesses. So they want that somebody managing that process. But in return for all this, we do typically ask for a uh a fee-based commission on the value of the sale. So we're motivated to make the sale as maximized as possible. Um typically that that level rate of commission varies by the size of the business, more or less. I can't imagine what other variables there would be. But I think that um a well, a rather the harder the business is to sell, and when I say that, I mean a business that's been in business for two or three years is harder to sell than business that's been in business for 30, 40 years. And the amount of revenue, and particularly the profit margins, are all very important. So those things make it easier to sell, better profit margins, more revenue, and especially also important is a trajectory of growth. In other words, uh an increasing amount of uh sales and revenue, sales revenue and uh profitability is always good. But listen, I understand by no means do most small businesses have very smooth ascent and very smooth-looking financial lines. If you have those, those are great, but you don't necessarily need those.

SPEAKER_01 21:28

Okay.

SPEAKER_00 21:28

Um lots of times a larger company can do two plus two equals five or six because they have economies of scale. So they know they can bring you in and make you your margins double right away. So don't think just because your business has had ups and downs doesn't mean that it's valuable. Um but we typically charge, I hate to say charge. It's a fee based only commission, first of all, which is very important. That means that if we do not uh have a successful sale for whatever reason, Then you don't pay us the commission. Okay. We may ask for a retain a retainer up front, but it wouldn't be more than five to ten thousand dollars. Um, and usually it's not any retainer. Um, there may be a retainer up front just to cover some costs because we're gonna put a lot of time and effort into this. Sure. But typically uh a business of $100 million in revenue um that's gonna sell for something in the $50 to $130 million range, typically we're gonna ask one to two percent for that. Uh a smaller company that is more in the 10 million to uh say 20 to 30 million range, we're probably gonna ask uh three to four percent for that. Okay. So it goes up as you get smaller and tougher. And if you're a brand new business and it's really challenging, you're really emerging, it might be five percent max. Commission rates are coming down like they are with everything. Sure. But um I think you'll find that uh with all that an advisor can help you with in terms of making you giving you the ability to make an informed decision on something that is very important to you and your family, you don't do it a lot, is valuable for you.

SPEAKER_03 23:12

Absolutely. Well, thank you, Stanley. You've walked us through that entire process, helped us understand how to set themselves up for success, how that process might look. So to summarize, what are a few of the key pitfalls that you see regularly happening in this process that uh business owners could avoid?

SPEAKER_00 23:26

I think um going back to being prepared and not, you know, running a tight ship. I mean, it's just like anything else. You sell your home, you want it to be clean, you want it to be uncluttered, uh, you want it to be well manicured, you know, curb appeal, etc. Businesses are no different, um, but you really should be considering three to four years ahead of time if you can, then not everybody has that luxury. Uh then the other thing is you may be sitting there running your business, mining your own business when somebody comes and makes you an offer. And that's not a bad thing, also, to get advice on. It's a very good idea to get a market study done, uh, maybe even a fairness opinion, which is a legal document. Um, not a legal document, but it's a document that looks at your industry, businesses of your size, and what fair pricing is. Um, typically businesses are valued on a multiple basis. In other words, a multiple of your net income, or really your EBITDA, which is net cash flow. So EBITDA stands for earnings before interest taxes and amortization depreciation, depreciation, amortization. So that's a measure of cash flow that they say, oh, you know, typically concrete companies right now are selling for small ones are selling for six to seven times, large ones are selling for 10 to 13 times. Um, and the profitability impacts and the growth rate and all that. So when they say seven times, they're talking about that EBITDA level. So if you're making four million dollars in net cash flow to a buyer, four million times seven is twenty-eight million dollars roughly. That's a target that you should be thinking about. Hopefully, we'll have pluses, just like you have minuses, you have pluses and minuses, just like any other appraisal that say, oh, it's worth a little bit more because of this brand or this IP or these large contracts that they just got that are going to pay more in the future. So you but you to to it's easy to not easy, but it's necessary to give an evaluation of where a company should be priced based on its size and profit margins, etc. And that's something that I do for people all the time. It's very easy, relatively easy for me to do to give them an idea of what the price range might be, which they always want to know. What do you think I'm worth? But the pitfalls are not understanding that, not understanding the valuation metrics and how they're arrived at, and really having somebody who has access to resources to tell you that. Okay, what should I expect? What do you think I'm worth? What are the pluses and cons of my business as you look at this process? But especially to be prepared with really good accounting and really good legal work. Um and not to put yourself in a situation where you have you have something unexpected come up, you get injured or sick or what have you, just wait till the last minute to do it if you can avoid that. Although I know that's not possible always, but well, Sally, this has been a very informative conversation.

SPEAKER_03 26:26

It's helped me understand the value that an organization like yours provides when businesses are seeking or considering the opportunity for sale. Is there anything that we haven't discussed that you want to make sure our viewers know about the work that you do and how you can help benefit their business if they're considering selling it?

SPEAKER_00 26:40

I think that it's never a bad idea, just like you would with a doctor or an attorney or an accountant to uh just like when you sell your business, sit down and have a high-level conversation. Here's the business I'm in. Um, tell me a little bit about yourself, meaning me. You know, I want to know about you and your experience and your thoughts about my industry and my business, my region, um, in order for you to get comfortable. Because what we just covered is a lot of information in a short period of time. But it'd be very smart of a business owner to sit down and say, high level, tell me about this process. How does it work? What goes wrong? How much does it cost? Those types of things. Um, because I I'm sure there's a lot that I've left out here just because of the limited time. But yeah, just do some homework on who you would want to advise you. I don't advise, you know, sell by owner. I realize that 3% of a large number is seemingly a lot of money, but um honestly, it may be the number one thing that a an advisor, an MA advisor can give you is intelligence with regard to gathering information about your company and about the buyers. It's the biggest thing is who has the best information. If the buyers know what the prices are and the seller doesn't, the seller's gonna get not, he's gonna get taken, he or she is gonna get taken, or they're not gonna maximize their pricing. Uh so if for no other reason, but also just to gather the information intelligently about your business and where it sits, what it's worth is. I think it's a very I can easily say that a good MA broker is one of the most worthwhile advisors or agents you could ever hire.

SPEAKER_03 28:22

Well it sounds like it, Stanley, and this has been a wonderful conversation. Thank you for helping myself and our viewers understand a lot about the work that you do and how beneficial it is to businesses that are considering buying or selling. Um so if you need to reach Stanley, we'll be uh providing that information and have really enjoyed sitting down with you today and learning more about your business.

SPEAKER_00 28:38

Thanks, Christine. Appreciate it. You guys are great and look forward to working with you in the future.

SPEAKER_03 28:43

Very good. Thanks so much. If you or your organization have a story to highlight, reach out to the Greater Naples Chamber. We'd love to continue the conversation. We'll see you next time on Chamber Chat.