People in the technology industry tend to be highly intelligent. But when it’s time to sell your business, intellect matters far less than experience. The more complex a task is, the greater the advantages are of prior experience. Selling a business is a highly complex undertaking—one for which even the savviest IT people are rarely prepared.
When selling a technology company, experience is paramount because the process is highly complex and sellers are typically outmatched by expert buyers. Strategic acquirers and private equity firms engage in M&A as their full-time business, often having worked on hundreds of deals for every one they complete. This extensive experience allows buyers to secure favorable terms and potentially eliminate less promising contenders. Therefore, it is crucial for sellers to have experienced M&A representation to optimize outcomes and navigate the intricacies of the transaction.
Why You Need Sell-Side Representation
- Hiring an M&A advisor when you sell confers some key benefits:
- They know valuation, and they know the market.
- They have a list of possible buyers including one’s you’ve likely never heard of.
- They can keep the transaction confidential and under wraps.
- They free your time to run your business.
- You’ve never done this before, and they have.
Research consistently shows that owners underestimate how difficult it will be to sell their business. They think it will happen more quickly and at a higher price than it usually does. Getting help early in the process can keep expectations reasonable and ensure outcomes are optimal.
Practice Makes Perfect
Many of us have heard the oft-quoted figure that it takes 10,000 hours of practice to become an expert. You may have seen this figure in action in your field. Consider that the other side of your M&A transaction will hire an expert team. Do you have 10,000 hours of experience in business sales? Probably not. This means you’re pitting inexperience against expertise. The expert almost always comes out the winner in this scenario.
When M&A is a Full-Time Job
Let’s consider who buys businesses. Strategic buyers and private equity investors are the majority of purchasers. They buy businesses for a living, which means they have plenty of experience. They know how to get the most favorable terms. They also know how to eliminate less promising contenders. Your business might be one of them without help.
Experience: An Advantage at Every Stage
Large companies have experienced M&A teams, and PE firms have immense experience at every stage of the transaction process. For every completed deal, they may have worked on 200 others—including drafting a wide range of documents. By the time you encounter a PE group, they have seen just about everything. You can’t outsmart them. They can outsmart you. Just as apartments tend to present tenants with one-sided leases, PE groups often offer extremely one-sided sale terms.
But What About Strategic Buyers?
Many technology companies hope to sell to the most common and largest strategic buyer. Here’s a harsh dose of reality: even world-class companies often struggle to get attention. The primary goal of M&A departments is to protect the home company. So the screening process can be incredibly challenging. Simply getting the attention of screeners can require immense work. From there, it’s a one-sided courtship. You’ll be endlessly trying to get their attention as they continually rebuff you or demand more.
These companies face a relentless demand for deals. They can leverage this into favorable terms and a lower price—assuming you can even get them to return your call.
Why You Should Get Multiple Offers For Your Business
An experienced advisor will run a controlled auction process for your business in order to capture as many offers as possible. It is in the best interest of the selling shareholders that a maximum transaction price is achieved. This can only be done by running a full transaction process to screen for all potential buyers. Experience shows that an advisor can increase and maximize shareholder value by running an efficient and thorough sale process.
Help Getting to the Letter of Intent
In its simplest form, a letter of intent sets the parameters for the deal terms. Every subtle advantage goes to the more knowledgeable party, who usually happens to also be the author of the document. This is another area where unrepresented sellers can get taken advantage of. Many of them don’t even know it. And those who do, have already signed a LOI that sets the terms to be highly unfavorable.
Experience wins over intelligence in virtually every M&A transaction. Even the smartest person you know fails the first time they do something new. Do you really want to fail at the new task of selling your business?
About Solganick & Co.
Solganick & Co. is an independent investment bank and mergers and acquisitions (M&A) advisory firm that provides specialized expertise in the Software, IT Services, Healthcare IT, and Digital Media sectors. Solganick & Co. offers strategic and financial advisory and relationships within the industry, a deep knowledge within these sectors, and a premium team of experienced investment banking professionals. Our team assists companies and owners in completing mergers, sales, divestitures, spin-offs and acquisitions that are strategically and/or financially beneficial to your firm’s business model and transaction goals.
For more information or to discuss an M&A transaction, please contact us at [email protected]