“Every business owner is going out the door, the question becomes: are they going out on their own two feet or are they going out on a stretcher?”
Selling a Business
Selling your business is often fraught with emotion, expectation and apprehension. You have invested time, money and sweat equity in successfully growing it, and you want to make sure you sell it to the right person at the right time for the right price. This takes time. Preparation, diligence and reasonable expectations are key to navigating the process with the best possible outcome for both you and the buyer.
Even the most desirable businesses in the most desirable industries should understand that trying to rush the process or skipping steps will invariably lead to leaving money on the table. Granted, a well-planned exit strategy is often an essential part of a seller’s timeline and can be mapped out years in advance. For purposes of this conversation, let’s primarily focus on the period between when the actual decision to sell has been made and the successful completion of the sale (getting paid!).
As Transworld Business Advisors, we are often asked questions like: how long will it take for the sales process to unfold? What are the typical markers of a well-planned, well-executed M&A sales process? Recently, we completed a closing that demonstrates a prime example of a perfectly executed business exit.
Staffing Companies Ripe for the Picking
In February 2022, Transworld Business Advisors completed a sale of a well-run employment and staffing agency with revenue greater than $10 million. It had a market ripe with strategic buyer interest, but let’s bust one myth before we go any further. Broad buyer interest does NOT necessarily translate to the best and most capable buyers. Sometimes they are, but most often you have not yet met your best buyer.
In general, the staffing industry generates a healthy volume of M&A activity, mainly with consolidation and strategic acquisitions. But certain staffing firms draw new investors and platform financial buyers into the race as well. This is because the workforce (business personnel and human capital) remains the backbone of all successful companies. If you have an edge in recruiting, training and retaining talent, then you likely will have higher productivity, better culture and hopefully a more valuable business.
Selling a Successful Staffing Company
Let’s look at the timeline of how we arrived at the February 2022 closing of this particular company.
February 2017 – First Contact
Our first step was to perform a Valuation and Discussion Materials (V&DM). The V&DM typically consists of 15 to 30 pages of market data and valuation considerations including a scorecard, financials and strengths, weaknesses, opportunities and threats (SWOT) that collectively act as a benchmarking process and road map for us to make sound decisions.
In this case, the valuation number wasn’t quite where it needed to be at the time we began meeting with the seller. In addition to not quite being ready, the seller had some anxiety about what they would do next. Post-sale planning is often just as important for the seller as pre-sale plans.
We spent the next four years working in collaboration with the seller working on shoring up critical value drivers and improving operations. We met with the seller periodically to discuss what was or wasn’t working operationally and made changes as needed to systems or processes to increase the valuation and prepare for sale. We also worked at finding ways to make the business less reliable on the owner for the day-to-day functions. This proves important in transitioning the business to a new owner seamlessly.
August 5, 2021 – Seller Contracts Transworld
While COVID-19 interrupted the business, it was able to pivot quickly and replace lost work by focusing more on healthcare staffing. This quick shift set the business up nicely for success and made it much more recession-proof and pandemic-proof.
This Seller was extremely organized. He has his paperwork together, and his financials were in good shape and produced in a timely manner at the completion of each month. We were able to get our marketing materials built and finalized in roughly 30 days, build our buyer list and prepare for launch.
September 7, 2021 – Go to Market
In the pre-market stage, we had identified nearly 800 buyers we wanted to approach with a teaser –WITHOUT NAMING AN ASKING PRICE. Interestingly, the seller provided six buyer leads who had regularly contacted him over the years to buy his business.
After hitting it hard for 60 days, working our buyer lists, organizing discovery calls, conducting site visits and performing preliminary due diligence requests, we had enough interest to make a call for offers. This allowed us to put dates in place and structure the rest of the process to closing. Competitive elements were in play, and it worked out beautifully.
November 15, 2021 – Call for Offers
Of the 800 potential buyers, we had 43 potential suitors that were under NDA, and about 20 of those were strongly interested…at least we thought and hoped! The deadline for all offers was set for November 15, 2012, and all final and best offers, letters of intent and term sheets were received and processed. By the deadline, we were excited to have received 11 LOIs. We then began to analyze all offers and crunch the numbers.
Fun Facts
- We had 800 potential buyers.
- 43 went under an NDA
- 20 of those were very interested.
- Of the six buyers the seller gave us to throw in the hopper, only two submitted an actual offer. Even more telling, those 2 offers ranked sixth and dead last when we compared them.
Pro Tip: Proactive Buyers that Call You Off the Street ARE OPPORTUNISTIC BUYERS
Opportunistic buyers do not pay the best price. They are searching for deals, and they thrive when there is NO competition. They are uniquely professional compared to a busy business owner who is uniquely disadvantaged --- information and experience are key.
Results – Deal Closed on February 28, 2022
So, what now? We had to compare the 11 offers, as they all looked drastically different. Throughout that week, we identified two of the 11 who were neck and neck frontrunners both in terms of offering price and potential fit with employees. One had a slight advantage on the price and structure on the offer but was not yet in the industry. The other was in the industry but needed to sharpen their pencil a bit to make the deal more palatable to the seller.
We negotiated with both potential buyers. One of the buyers bowed out of the race and we inked the deal with the strategic buyer. We had a 75-day due diligence period that went fairly smoothly – not without the usual challenges and hurdles to clear, of course.
We closed the deal on 2/28/2022, only six months from engagement, but it was years of laser-focused planning and execution that made this timeline possible. I’m sure many of you are wondering… what was the price? Since this was a privately held sale, we are not at liberty to disclose the price, but what we will tell you is that we internally (Transworld and the Seller) targeted an anticipated number that we believed was spot on to the market. Seven of the offers were all around our internally anticipated enterprise value. However, the final negotiated offer was 52% higher than our target selling price!
Conclusion
In this case, all the stars aligned (well, with a lot of hard work and preparation). Our seller’s business was a well-oiled machine. We worked well together with our client to be strategic and improved the expected outcome. Working with a thoughtful seller who embraced the process with us made our jobs easier. The presence of a competitive market worked to our advantage. And yes, we don’t mind giving a shameless plug - we had a great Transworld team orchestrating the process. When you have the right ingredients, anything is possible… but only one bad ingredient can ruin the entire meal. In this case, everything was spot on.
Are You Ready to Sell?
If you are doing the math, you truly should plan on six to eight months at a minimum to run the process from engaging the market to closing. However, there are all sorts of disclaimers and events that can happen that shift the sales process and exit timeline. Some of those factors can be foreseen and others are not predictable and often are uncontrollable (i.e. a pandemic). But using this recent case study as a healthy business example, you should have a better understanding of the amount of time that goes into a full-scale M&A sales process.
About Transworld Business Advisors of the Gulf Coast
Transworld Business Advisors of the Gulf Coast covers the northern Gulf Coast along the I-10 & I-65 corridors with special emphasis in Mobile, AL to New Orleans, LA. We strive to be the top business brokerage firm in the area and leverage our extensive experiences and our international Transworld platform to run confidential and competitive business sales processes. We help entrepreneurs to buy a business or sell a business, with a focus on helping family-owned and closely held businesses with their strategic plans for the future. Transworld offers a wide range of advisory services to the northern Gulf Coast Region, including Alabama, Mississippi, Louisiana and the Florida panhandle, that are tailored to fit your business needs, whether you’re buying, selling, preparing to sell, or franchising.
If you are ready to sell, or you would like assistance getting your business ready to sell, reach out today at [email protected].
