Common Misconceptions and Assumptions in M&A

For many business owners, the decision to sell their business marks a significant milestone in their journey. Whether prompted by financial considerations, personal goals, or market dynamics, selling a company can be a complex and emotional process. However, amidst the excitement and anticipation, it is essential to address the common misconceptions that often cloud the path to a successful sale.

1. Overvaluation: One of the most common practices among business owners is overestimating the value of their company. Factors such as emotional attachment, pride in achievements, or inflated market trends can lead to unrealistic expectations. It is crucial to have a thorough and objective valuation performed by a third party, considering various aspects such as financial performance, market conditions, and industry benchmarks. Seeking professional assistance from valuation experts or M&A advisors can provide a realistic assessment and set appropriate expectations for the sale process.

2. Confidentiality Concerns: Many business owners fear that initiating a sale process may leak sensitive information and disrupt operations or relationships with stakeholders. Confidentiality is vital, and if performed correctly, an M&A transaction can be completed without sensitive details becoming public. Implementing robust confidentiality agreements, selective disclosure strategies, and engaging reputable advisors can help maintain confidentiality while effectively marketing the business to potential buyers.

3. Timing the Market: Attempting to time the market perfectly is a risky strategy that often leads to missed opportunities or prolonged delays in completing a transaction. Market dynamics, economic conditions, and industry trends are inherently unpredictable. Instead of waiting for the ‘perfect’ moment, focus on staying ahead of the game. Preparing the business for sale, maximizing its value, and being ready to capitalize on favorable opportunities as they arise will lead to a better financial outcome and a smoother sale process.

4. DIY Approach: Some business owners believe they can manage the sale process independently to save on costs or maintain control. However, selling a company involves complex legal, financial, and strategic considerations requiring specialized expertise and time. Engaging experienced professionals can streamline the process, mitigate risks, and maximize value. In addition, owners and founders can concentrate on running their businesses without losing revenue, profits, and value.

5. Believing the Work is Finished Post-Closing: While closing the deal is a significant milestone, it is essential to consider the implications of life after the sale. Transition planning, tax implications, and wealth management strategies should be addressed proactively to ensure a smooth transition and optimize the financial outcomes for the seller. Waiting till after the transaction closes is too late to take advantage of the tools at your disposal.

6. Sole Focus on Price: While achieving a favorable sale price is undoubtedly important, it should not be the sole focus of the negotiation process. Other factors such as deal structure, payment terms, cultural fit with the buyer (i.e., what happens to the management team and employees), and long-term strategic alignment can significantly impact the overall value and success of the transaction. A balanced approach that considers both financial and non-financial aspects is key to a mutually beneficial outcome.

7. Underestimating Due Diligence: Due diligence is a critical phase of the sale process where the buyer thoroughly evaluates the business’s operations, financials, and legal affairs. Some sellers underestimate the time, effort, and resources required to facilitate due diligence, leading to delays or deal failures. Thoroughly preparing documentation, proactively addressing potential red flags, and being transparent with the buyer can expedite the due diligence process and instill confidence in the transaction. Choosing the right partner to represent you can and should help alleviate several of these issues.

8. M&A Advisors/Brokers/Investment Bankers: Most founders and owners conflate the terms ‘M&A Advisors’, ‘Brokers’ and ‘Investment Bankers’. They are not the same, and the practices of each have different pricing structures, processes, and outcomes. Understanding the differences and choosing the right one will increase the success of the transaction and the ultimate happiness of the owners/founders when all the dust has settled. Simply making a decision based on the percentage of compensation is the biggest mistake, as there are many key factors to consider. Expenses, retainers, legal fees, additional professional services fees, credited upon closing fees, and man hours are all hidden expenses that can add up. Make sure you compare apples to apples.

Ultimately, navigating the sale of a company requires careful planning, realistic expectations, and a clear understanding of the overall process. By adopting a strategic and proactive approach, business owners can increase the likelihood of a successful sale that maximizes value, achieves their objectives, and ensures the perpetuation of their company’s culture and legacy. Consulting with experienced professionals and leveraging their expertise can provide invaluable support throughout the journey, ensuring a smooth transition and a bright future for both the business and its stakeholders.

How Western Can Help
Western is a boutique M&A advisory firm. Our specialty is helping closely held, or family-owned companies bring their companies to market and complete a successful sale transaction. That can also include bringing in outside partners or other forms of capital. We seek to help business owners navigate what can often be an emotionally charged, challenging, and confusing process and bring order to it. We are only successful if our client walks away from the transaction feeling like they did right by their family, company, employees, and legacy.

Contact us today to explore how you can safeguard your company’s and your family’s long-term success. Our talented Pathfinders look forward to having an informative discussion with you.

Turner Holthaus: / 314-420-6999
Rick Groesch: / 817-658-4653
Don Woodard III: / 817-360-8595
Western: / 817-877-9980

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