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Resources and information on transferring or acquiring a business.Touchstone's Proven Sales Process
When selling a business, our goal is to maximize the sales price, the terms, and the ultimate value of your company.
We do that through our three-phase selling process designed to:
- Enhance the fundamental value of your business;
- Maximize the price, terms and value of the company; and
- Work with your professional advisors to minimize taxes.
The Touchstone process ensures you will sell your business to the right buyer, for the most value, and under the best terms and structure.
Read through the entire process or simply click on any phase for a fuller explanation.
The first phase in preparing your business for sale is to:
- Determine your goals and motivations for selling the business;
- Assemble your team of exit planning professionals;
- Complete a comprehensive review of the business and have a business valuation completed; and
- Decide either to sell the business now or to prepare an exit plan that meets your goals.
Here are the steps we take in Phase 1 of the Touchstone process:
1. Identify the Seller's Goals and Motivations
First, we meet with the business owner, shareholders, and their advisors. Our first priority is to understand what the Seller hopes to accomplish by a sale of the business and his/her timetable. We discuss the amount the Seller needs for retirement and other obligations, family issues, and the Seller's future involvement in the business. We gather all this information so we can understand client's needs and meet his/her goals.
2. Assemble the Team
We help the business owner assemble a multi-disciplinary team to ensure that all aspects of the transition plan are integrated and executed to their maximum benefit. The team of professionals to prepare and execute an exit strategy should include:
- A mergers and acquisitions professional (that's us)
- An attorney
- An accountant
- A financial planner
- An insurance professional
Touchstone has a deep pool of professional advisors we can recommend as resources; we can help the business owner with referrals, interviews, and the final selection of advisors. This team approach to developing and executing an exit strategy ensures a comprehensive and successful outcome.
3. Valuation & Analysis
Touchstone works with the Seller to gather all the financial, operational, and business information and documents, and complete a business valuation and marketplace analysis. The Touchstone marketplace analysis is a strategic planning tool with value enhancement recommendations, descriptions of acquirers, estimated business valuation, and probable transaction structures. It also includes an independent business valuation from a separate, ASA-accredited appraisal firm.
A business valuation contains critical information that will help you decide whether to prepare, market, and sell your business.
A market analysis considers the synergistic and strategic value your company has to specific buyers. The report addresses factors specific to your region, competition, and company. A complete review and analysis of your company, industry, and competition helps us determine a realistic range of values your company could command, and to determine what would increase the value of your company.
4. Decision to Sell or Hold
Now that you have considered your goals and motivations, received a realistic valuation of the company, and discussed its potential value with your mergers and acquisitions professional, you are ready to decide whether to sell your business now or wait until a later time.
If the valuation and marketplace analyses show steps you can take to increase the marketability or value of your company, or if market conditions are not favorable right now, you may decide to hold the company until you can realize a greater profit from its sale.
We can recommend professionals to help you create a strategy for reaching your goals.
The second phase in selling your business is to:
- Define the target market of buyers who will pay the best price and/or value for the business;
- Develop and execute a marketing strategy to attract the best buyers;
- Prepare a Confidential Business Review; and
- Conduct a controlled auction, or develop another deliberate strategy to sell your business to the best buyer.
Phase 2 of the Touchstone Process is to maximize the value a buyer will pay for the business. By properly preparing and marketing a company for sale to the potential buyers who can realize the most value for your agency, we increase the terms and price paid for the business.
5. Define Target Market
The first step in the Marketing Phase is to define the target market. Marketing the business too broadly may risk a breach of confidentiality.
In the sale of any business, there are three broad categories of buyers:
1. The Strategic and/or Industry Buyer
2. The Financial Buyer
3. The Individual Buyer
Strategic or Industry
Buyers: The strategic buyer is usually a larger company that is growing by acquisition, or a company in the same industry that can derive additional value from acquisition of a company in the same industry. For example, in the insurance industry, insurance agencies and insurance companies are generally strategic buyers who place the most value on acquiring insurance agencies or books of business. But be careful to distinguish between the industry buyer described above and the industry buyer looking to take advantage of a seller under particular stress of unaware of his company's true market value.
Financial Buyers: Financial buyers are Private Equity Groups (PEG), or individual high-net worth individuals looking for investments and higher than stock market rates of return. Financial Buyers are interested in making 20–30% rates of return on their investment and higher. Many PEGs have purchased "platform" companies, which then grow organically, and by acquisition. In many instances, the platform company will look at acquisitions from a strategic buyer standpoint, rather than from the PEG point of view. Financial Buyers can be found looking for companies and investments with Earnings or EBITDA of $500,000 and more.
Individual Buyers: Individual buyers are typically retired individuals from corporate environments, or serial entrepreneurs who have had success in starting and running small to mid-sized companies. Individual buyers usually have the experience and track record to own and successfully manage a small- to middle-market company. In the insurance agency industry, individual buyers often are big producers from another agency, retired executives from insurance companies, or vendors of products that serve insurance agencies. While most individual buyers are financially qualified to purchase a business, it is important to gather financial information, references, and credit history to ensure that the individual does have the financial wherewithal to purchase your specific business, at the price and terms that other buyer types are willing and able to pay.
To obtain the best offers for your business, the logical process is to attractively market the business to those buyers who can give you the most value for the business.
6. Marketing Strategy
After the target market has been identified, Touchstone creates a customized and targeted marketing plan to identify potential acquirers. We complete a total industry analysis to identify all the synergistic and integration possibilities. Industry and adjoining industry buyer candidates, private equity groups, individuals, and foreign investors are confidentially contacted and provided a "blind profile" of the company to assess their interest—before revealing any further information about our client company, including its name.
7. Confidential Business Review
Touchstone creates a Confidential Business Review (CBR), with all appropriate supporting documents. The CBR is a complete description of the business, its financials, its structure and history, and other aspects of the business.
This client-approved document is sent only to qualified and approved buyer prospects who have signed a Non-Disclosure Agreement. The CBR streamlines the business review process and allows us to communicate effectively with potential buyers.
The Confidential Business Review is similar to a 10K report that is filed by publicly traded companies with the Securities and Exchange Commission.
8. The Controlled Auction
The Controlled Auction is the most effective process to maximize the price and terms of the sale of a business.
A maxim in the mergers and acquisition industry is that "one buyer is no buyer." In a Controlled Auction, a business is widely marketed to a specific target audience, creating an environment where multiple buyers bid for the business. Each buyer knows that there are other buyers, but the terms or price of the other offers is not disclosed.
This process elicits the best price and terms from a variety of buyers. When properly prepared and executed, the Controlled Auction is extremely effective in maximizing the price of the business and determining its true value.
Touchstone Advisors coordinates all conferences, site visits, and negotiations until the "best buyer" has been identified. Typically, details must be negotiated and compromises are necessary on both sides to reach an agreement that meets the objectives of both Seller and Buyer.
Offers are submitted in a Letter of Intent, which spells out exactly what the Buyer is going to pay for the business and the general terms necessary to complete the transaction.
The third and final phase of selling your business is to:
- Structure the deal;
- Complete due diligence;
- Negotiate and complete the necessary legal contracts; and
- Close the transaction, and participate in post-closing integration of the business.
The objective of the final execution phase of the mergers and acquisition process is to have the closing take place in an orderly fashion with the least disruption to the business.
9. Structuring the Deal
After the basic terms of the Letter of Intent have been agreed to by the buyer and seller, the structure and details of the transaction need to be determined. The buyer and seller's accountants will be involved in spelling out exactly how to best structure the deal to minimize the impact of taxes. The buyer and seller will work out the details of promissory notes, earn out arrangements, employment agreements, and other material terms to the transaction. Generally speaking, there are four main types of consideration or compensation for the sale of the business:
Cash and Equivalents: Cash at closing is almost always a material component to every sale of a business. Equivalents to cash may include assumption of debt, marketable securities, or other consideration that have an immediate cash value at closing. In most instances, sellers of businesses would prefer to maximize the amount of cash at closing, while buyers prefer to have less cash and have a future component that is tied to the performance of the business.
Promissory Notes: A promissory note is a loan by the seller of a business to the buyer, generally secured by the combined businesses, and often with a personal guarantee from the buyer. A promissory note is not conditioned on the future performance of the business. Promissory notes are often used when traditional financing is not readily available. This is also called "seller"s financing."
Earn-outs: An earn-out is a future payment that will be made by the buyer if and when certain conditions are met in the future. This is also called payment based on retention. If accounts or customers are retained, and revenues are received by the buyer in the future, then the seller is paid a portion of the revenues for a set period of time. There may be other structures as well, such as earn-outs based on total annual sales, growth rates, or key customers or accounts being retained for a set period of time.
Employment Agreements: In almost all transactions, there is a provision that the seller, and key management, will continue to work at the business for a specified period of time, generally one to six months post-closing. Depending on the wants and needs of both the buyer and seller, there may also be additional employment or independent contractor agreements that may span several years or indefinitely. Because the seller is generally one of the key people of the business, the transaction can be structured to include an employment agreement that has a generous compensation package as part of the overall transaction.
All four of the above types of consideration are negotiated while structuring the deal. In some instances, the business owner is looking to retire with a large amount of cash at closing, and is no longer interested in working. In other instances, a large publicly traded company or private equity group may be the purchaser and need the current owner and management team to stay on for a period of time.
10. Due Diligence
Due diligence is the process through which the buyer can examine detailed information on the financial, operational, and corporate/legal aspects of the business. During the due diligence period, the buyer and his/her advisors conduct a comprehensive investigation of all of the details of the business.
The purpose of due diligence is to verify and confirm that all material facts to the business are as they were represented to the buyer. It is also a time for the Seller to investigate the Buyer to be sure that this is the right choice.
11. Contracts
After the Letter of Intent has been signed by both parties, your attorney, mergers and acquisitions professional, and accountant will negotiate and draft the contracts that will be necessary for closing. We coordinate these activities.
Typically, the four main types of contracts to close a transaction are:
- Purchase and Sale Agreement;
- Employment or Consulting Agreement(s);
- Non-Compete Agreement; and
- Promissory Note.
In addition, there can be a number of licensing, appointments, producer contracts, and other legal contracts that need to be executed or agreed to while moving toward closing, at closing, or sometimes in the post-closing integration phase of the process.
12. Closing & Transition
The final stage of the mergers and acquisitions process is preparing for and closing the sale of your business. The mergers and acquisitions professional prepares a timeline and final checklist of all items that need to be completed before the closing, to ensure that the sale of the business goes through on time and without any surprises.
The time between completion of due diligence to the actual closing date can be anywhere from one to six weeks. On the day of closing, all definitive contracts and agreements between the parties are executed, dated, notarized, and distributed to all of the principals and their advisors.
The real responsibility of post-closing integration falls on the shoulders of the buyer, but to ensure the highest possible success for all parties involved—and the least disruption to the business after the sale—the seller is involved with several key aspects of the integration, including a communication strategy to employees, key clients, and other key "stakeholders."
If you're ready to have a confidential phone consultation about the sale of your business, call Touchstone Advisors:
860.253.9087