How to Sell Your Lower Middle Market Busines How to Sell Your Mid-Size Business 3 Preparing Your Company

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  • How to Sell Your Mid-Size Business

    Maximize Price with

    Marketing and Bidding

    Ney Grant

  • Copyright © 2018 Ney Grant

    Graeme Plant, Editor

    A special thanks to Graeme for the great deal of time he spent cleaning up my blog-style writing. He also added a few “Deal Extracts” (personal war stories)

    that help liven up the book.

    All rights reserved.

    ISBN: 1478201835 ISBN-13: 978-1478201830

    Legal Disclaimers and End User Rights This publication is designed to provide accurate and authoritative

    information with regard to the subject matter covered. It is provided with the understanding that the author, publisher and editors are not engaged in rendering legal, accounting, or tax advice. If legal or tax advice is required,

    the services of a competent professional person should be sought. This book and all of the intellectual property rights therein shall at all times

    remain the exclusive property of Ney Grant.

  • Table of Contents

    Introduction 1

    DataPack Offer 2

    Preparing Your Company and Knowing When to Sell 3

    Knowing when to sell: Where are you on the life-cycle curve? 4

    Timing the sale of a business 7

    Burned Out? 8

    How long does it take to sell a business? 9

    Example deal timeline 10

    Selling your business within two years? 11

    Two business owners, two different approaches to business 13

    The emotional roller coaster of selling your business 14

    Eight common mistakes business sellers make 17

    Creating your dream team of professionals 19

    Marketing the Business 23

    Marketing = Competitive Bidding = Maximum Selling Price 23

    The Competitive Bidding Process 26

    Negotiations 34

    International Marketing 34

    Earnings: EBITDA 37

    Adjusting earnings – Add-backs 39

    The Essence of Business Valuation 45

  • Future earnings equal value 46

    Why use Multiples of Earnings 48

    Multiples of EBITDA 48

    Middle Market Business Valuation 49

    Valuation guide and chart 49

    Value premium for “quality” businesses 51

    Return on investment 55

    Confidentiality 59

    How do you market a company and keep it confidential? 60

    Should you tell your employees? 60

    Business brokers to Investment Bankers: Fees and Services


    Business brokerage 64

    Merger & Acquisition Firms 65

    Broker and advisor regulations and licensing 66

    Commissions and fees 67

    We have a buyer for your business! (Not) 70

    Business-for-sale seminars 71

    Choosing a business broker / M & A advisor 72

    Broker/advisors do more than find a buyer 74

    Taxes and Deal Structuring 77

    Ordinary income vs. capital gains 78

    Deferring taxes 80

    The letter of intent explained 82

    Earn-outs 85

  • What are earn-outs? 86

    Business are bought for future earnings 86

    Scenario 1 – stable earnings 87

    Scenario 2 – supported growth 88

    Scenario 3 – unsupported growth 90

    Scenario 4 – recession-proofing a transaction 90

    How often are earn-outs used? 91

    Earn-out period 92

    Amounts in earn-outs 92

    Controls and restrictions 93

    Strategic vs. Financial Buyers 95

    Strategic buyers 96

    Financial buyers and private equity groups 97

    Typical middle market PE – committed funds 98

    Typical lower middle market PE – search funds 98

    Why private equity uses debt to leverage its investment 99

    Due Diligence and Getting to the Finish Line 103

    What is appropriate due diligence? 104

    How not to do due diligence 105

    Other due diligence issues 106

    Paper or Electronic Deal Room? 106

    In the end, there must be some degree of trust 107

    Closing a deal: Moving from negotiations to logistics 109

    Purchase Agreements 110

    Sample Purchase Agreements – Datapack 110

  • A Tale of Two Deals 111

    The asset sale vs. the stock sale 111

    The strategic buyer vs. the financial buyer 115

    Deal structuring and getting what you want 118

    Deal attorneys 121

    Life as an M & A advisor and Deal-Maker 123

    Landing engagements and selling your services 123

    Meeting with business owners 124

    Buyer/seller meetings: Smoke jumping 127

    Flying south 131

    Exciting times: Meeting walkouts 134

    Mundane tasks – Doing what it takes 135

    Negotiations 137

    Closing the deal 138

    Appendix 140

    Tale of Two Deals: The Private Equity Letter of Intent 140

    Tale of Two Deals: Strategic Buyer Letter of Intent 148

    Tale of Two Deals: Due Diligence Request List 152

    101 Things You Should Know About Selling Your Business 164

  • How to Sell Your Mid-Size Business



    Welcome to the definitive guide to selling your mid-sized business. We have

    condensed years of experience preparing, marketing and selling businesses

    into this book. I’ve written many hundreds of blog entries, spoken at

    seminars, made hundreds of presentations, toured and met hundreds of

    business owners across the country and continents. We have offered

    volumes of advice and information on this topic, but this is intended to be

    a comprehensive guide to what can be a prickly process. We’re hoping

    you’ll walk away from this book smarter, more confident and readier than

    ever to embark on this next step of your life.

    Happy selling.

    Ney Grant

    Deal Extracts

    Many chapters include first-hand stories about buyers and sellers we have

    encountered. Some of these deals closed, and some didn't. These are stories of

    integrity and greed. Some are useful and educational, and some are just plain

    entertaining. In deal-making, as with other parts of life, reality can be much

    stranger than fiction.

  • Ney Grant


    DataPack Offer

    I have assembled some files and documents that go along with the book

    and these will be sent to you by emailing me at The Datapack includes:

    - The final deal agreements for the “Tale of Two Deals” examples used

    in the book. One is a Stock Purchase Agreement and the other is an

    Asset Purchase Agreement.

    - The due diligence request list included in the book is fairly brief. I’ve

    included in the datapack a more detailed request list.

    - I have included two deal modeling spreadsheets actually used by

    buyers. One is from a large strategic buyer and one is from a financial

    private equity buyer. It is interesting to see how buyers view an

    acquisition from their point of view.

  • How to Sell Your Mid-Size Business


    Preparing Your Company and Knowing

    When to Sell You may be thinking about selling your business now or in the next few

    years. Timing can be important, not only in regard to the economic climate,

    but also in terms of the life cycle of your business.

    Deal Extracts

    An Example of Good Timing…

    We had a client in 2008/09 (in the middle of the deepest recession since the

    great depression) whose alternative energy business was growing rapidly. At the

    same time, a new President came into office with a major focus on alternative

    energy. Amid all that optimism, it was extremely difficult to nail down how

    much growth this company would experience. An unsolicited offer came in for

    about six times earnings before interest, taxes, depreciation, and amortization

    (EBITDA). After creating some competition by getting another buyer interested,

    the bidding exceeded 12 times EBITDA. Could the owner have kept it and

    grown the company himself to realize an even bigger gain? Quite possibly, but it

    was a great exit for the seller and there was significant risk in many of the

    projects that could have slowed the revenue growth.

    … And Bad Timing

    In 2007, we provided an opinion of value of around $7 million to a husband

    and wife team that owned a steel fabrication company that provided product to a

  • Ney Grant


    number of companies, none of which were more than 15 percent of their

    business. The husband wanted to sell, but his wife wanted to gross $10 million

    minimum on the sale. She convinced her husband that if they waited just a few

    more years and grew earnings a bit more, they could get more money for the

    business. Unfortunately, though their customer base was diverse, almost all were

    suppliers to RV manufacturers. Gas prices suddenly spiked to $4 per gallon and

    the RV industry went off a cliff. In 2008, the company declared bankruptcy

    and closed its doors.

    Knowing when to sell: Where are you on the life-cycle


    There are many reasons that business owners sell their companies. Three