Questions To Consider Before Starting the Process to Sell Your Business
The rapid rise in the number of PE funds searching for acquisitions across various sectors and size ranges has greatly enhanced exit options for private owners of businesses. The pool of potential buyers now extends far beyond competitors or other corporate acquirors. Significant competition among PE firms under pressure to invest large pools of capital has increased average purchase multiples to historic highs.
Business owners should not assume, however, that heated PE competition correlates to a high probability of their own successful sale. There is much at stake for business owners in launching a process to market their company for sale. Private owners tend to underestimate the substantial time, money, and distraction involved in a transaction process and may likely overestimate the probability of success. Additionally, the investment bankers pitching their services have an inherent conflict in providing advice regarding the sale process. An investment banker's livelihood depends on earning fees contingent on the completion of a sale, and they have less at stake in convincing an owner to start a process. As a result, a private business owner may likely be inadequately informed and not fully comfortable in making this momentous decision.
The purpose of this note is to help business owners make informed decisions as they contemplate a sale process. I highlight five fundamental questions a seller should consider before initiating a sale process:
Am I ready for this huge transition?
Do I fit what a buyout firm wants?
Should I launch a sale process?
How should I prepare for a sale process?
How do I avoid getting taken advantage of?