My 2nd favourite question from a business owner is: How long does it take to sell a business? My favourite response from a business broker is, “that depends.”
I don’t have a Scorcese gift for dialogue, so will refrain from extending the hypothetical conversation but, the duration of a business sale process is entirely dependent on a bunch of variables (if variables can be entirely dependent on anything?) of which, these elements play key roles;
- Market Readiness
- Seller Expectations
Deal longevity is also dependent on a bit of luck. One business might go to market at just the time an FD has received a green light from the board to engage in an aggressive acquisition strategy and wants to drive quick deal flow.
Conversely, another business might hit the market at the wrong time (board have just stopped FD’s flighty acquisition spree) or encounter a problem during the process itself that dramatically shifts the time scale out.
From personal experience, I advise clients to prepare themselves for 9 – 12 months between signing up to the process and signing away the business. If a business needs to prepare in advance of going to market, extend that by the weeks/months required to get all their ducks in a row.
During 2012 we saw a wide range of deal completion times, from 10 to 110 weeks;
– The former business owner found a buyer and heads within days of going to market;
– The latter identified target buyers but having started to negotiate and to sell a business, found themselves having to deal with an intransigent 3rd party issue and therefore, a badly stalled completion date. As a yardstick, for the smaller, straightforward business, assume 3-6 months.
For mid-range and larger SMEs, brace yourselves for a 12-18 month process, particularly if you need to prepare in advance of going to market. Another key psychological issue (bear in mind that trading performance of selling business has to be maintained throughout this period) is for the business owner never to assume that heads of terms will automatically mean completion.
Heads of terms are followed by a process of Due Diligence, where a buyer (and/or their advisors) gets under the bonnet of a target business and undertakes a micro investigation of their operation.
It can be a nervous and complicated process, not helped by the contrasting expectation and competing agendas of different parties.
The key to minimising the risk of the DD process torpedoing a deal is to undertake up front DD in advance of going to market. The potential of future deal breakers and stress will be minimised by… “something you prepared earlier”. Think of it as the ‘Blue Peter’ approach to due diligence.
The buyer also needs to pay for the business and may require external finance, which can take time to prepare and approve. The vendor should check the buyers funding position as early as possible in negotiations and not take what they say at face value. See some proof. There is no point negotiating a great deal with someone who can’t afford to pay, If they can’t fund it, the deal is going nowhere fast.
Don’t be forced to sell and don’t be rushed into agreeing terms. The key to any business sale process is to retain control at all times. When control is lost by the vendor (and/or their advisors), then a deal can get fragmented, and the timings start to stretch out.
One thing is for sure in corporate deals, time kills deals.