October 15, 2012

Smart Sellers Plan Well Ahead

Ash Sethi – Analyst, MergerTech


Imagine Roger Federer losing in the first round of Wimbledon, and that too in straight sets.  It doesn’t seem possible does it?  At the press conference afterwards he reveals that, astonishingly, he waited till the day before the tournament started to begin practicing, training, and getting his nutrition in order.  The audience cannot believe it.  When a high stakes event begins, one needs to have months, sometimes years of preparation and consultations with advisors and mentors.

Selling your company is not any different.  The right time to begin a conversation with an M&A advisor is not when you are finally ready to go to market, but well in advance.  For what is a trivial investment in time, can result in a substantial payoff in overall financial consideration and employment terms when an acquisition is completed.

Not only will a banker be able to tell you what your firm could potentially sell for at present or after several quarters of continued growth, but he can show you how best to get your company ready for sale.  This includes getting all contracts assignable, codifying company procedures, getting financial statements reviewed, and unifying management objectives.  Addressing issues like these well before you begin a marketing effort ensures an efficient and smooth process with less delays, fewer added costs, and the opportunity to obtain more offers with the best possible exit multiple.

Often times founders think they are too small to seriously explore strategic options—and they may well be right.  However many companies in certain verticals with specific types of talent pools or technology are ripe for M&A even when their revenue stream has yet to mature.  In fact, the median size of an M&A transaction over the last two years is just $15M.

A banker may tell you that you are not mature enough yet for sale, but you can leave the meeting with a better sense of what vector you should be on in order to complete a sale in the future.  MergerTech’s founders spent over two years talking to their M&A advisor, getting advice, trading ideas and observations about the M&A market, before they ever went to market.   Their company, Saber Corp, was eventually sold to EDS for $460M.

So to the question, “Is it ever too early to talk to a banker?”, the answer is “never.”