Do These Six Before Trying to Sell Your Company
By Spencer Ewald, Next Coast Brokerage
One of the most rewarding parts of leading the Next Coast Brokerage business is engaging with IT and BPO business founders. These are men and women who had the courage to establish their businesses in often difficult environments and gathered the strength to guide their company’s growth – which, as we all know, is never a simple process.
All that hard work should pay off when it comes times to sell. However, many founders fail to understand that, just as they had to create the proper foundation to grow their business, they need to get things properly aligned when it comes to selling the business to an investor.
At Next Coast Brokerage, we have spoken to over 40 BPO and ITO companies seeking to buy and sell since launching the operation six months ago and have learned a great deal from these interactions. (These discussions are a key part of our regular match-making service). Here are five critically important steps that all founders should follow when getting ready to sell:
Create a company profile presentation
When selling your company you will be telling a story. The Company Profile is usually the first document you will present to an investor and should outline your business so that it appears attractive and compelling. This document should include: locations, company’s market strategy, company performance, the unique value proposition, management team/ownership and condensed financials with projections.
Clean up and make your books presentable
It comes as no surprise that a vital part of any M&A review are “clean” financials. They should be at least certified but preferably audited. During the due diligence process the last thing you want is for the buyers’ accountants to find mistakes in your financial documents. This can, and likely will, have a negative impact on their final offer.
Prepare your senior managers so they are not blindsided
During the sales process think about which managers may be called upon to speak with the buyer, such as the CFO, CTO, VP of Sales/Client Services etc. The last thing you want in your business is to have managers/employees spreading negative rumors about the company being sold. Be honest with your core team and let them understand the importance of keeping things confidential.
Build your dataroom, and make sure it’s stellar!
Different buyers will want different information during due diligence. When building the dataroom make sure the folders are well organized and the documents are filed correctly. I had a client who built a dataroom that was unorganized and the investor’s lawyer killed the deal. We reorganized the data and were able to get the investor to take a second look. Not only were they impressed, they re-engaged in negotiations.
Be reasonable about what your business is worth
Of course you want maximum value for your company but being realistic is an important part of getting what the company is worth. Talk to a consultant, your broker and industry associations. They can give you an idea of the “Market Multiple” (for example, 5X to 9X on EBITDA or 2X sales). Things that influence the multiple are company growth, client list, contract longevity and management team among other issues.
Consult a Nearshore IT/BPO expert
Just as this essay has addressed some of the issues you need to think about to prepare for a sale, we recommend speaking to a Nearshore M&A expert. You will be able to accelerate the sales process, identify interested buyer organizations, and get the best deal possible. You will want “to put your best foot forward” and having an expert from outside your organization can help with the positioning of your company to an investor.