How long does it take? Well, presale planning helps.
I am often asked, “How long will it take to sell my business?” That depends on a number of things. It’s easier to estimate the time needed for certain aspects of the selling process than it is for other aspects. I usually break down the process for selling a mid-market company into six milestones. Let’s look at each milestone, considering what it involves and how long you can expect it to take. Presale planning is a huge piece of this.
1. Evaluation and Presale Planning. This is probably the hardest part of the process to estimate. I usually recommend that you begin planning your exit many years in advance of when you will actually want to sell your business. Many sellers are unaware of the advantages of working with a good intermediary to position the company for maximum value, and they don’t realize that the sooner you start that process, the greater the value of your business at the time of sale. Once you are ready to put your business on the market, it may take 3 or 4 weeks to perform an evaluation on the business. It takes that long to gather and digest all the necessary information to understand and value your business and create the most effective sales strategy.
2. Packaging. It usually takes about a month to create all of the materials needed to market a mid-sized company. I usually create an Offering Memorandum as the primary tool to market your business. This is similar in length to a business plan, but it has a much different purpose. It is time consuming to write but saves time later in the process when working with multiple buyers.
3. Identifying Acquisition Candidates. Finding the right buyer can take months and sometimes years. If there are obvious buyers for your business, then it may take two to three months to determine if any of them are interested in making an offer.
4. Negotiating Letters of Intent (LOI). Assuming that one or more identified buyers want to make an offer on the business, it takes 45 to 60 days to negotiate the Letter of Intent. The buyer will rarely make a full price offer on the first pass; so you’ll be negotiating a number of drafts of the LOI before it is acceptable to all parties. In most situations you should keep seeking additional buyers until the LOI is signed. At that point you’ll be working with only that buyer (since most LOIs forbid you to court other buyers).
5. Contracts and Due Diligence. Once the LOI is signed, your next steps are to negotiate the contracts and perform due diligence. These are separate processes that usually occur in parallel, taking about 90 days to complete. Now is also the time for the buyer to procure any third-party financing. Most financing takes about 90 days to put in place, so if the buyer does not have financing sources already identified, this may stretch out the time to closing.
6. Closing. The closing is when the business actually changes hands. This is handled primarily by the attorneys and may take a day or two, depending on whether all the documentation is accounted for and there are no problems uncovered.
The upshot? I tell clients that it may take from between nine months to a year to close a transaction on a middle market company – from the time you actually put it on the market. On rare occasions, I’ve seen transactions that closed on tighter time frames. But usually these situations were the result of an industry savvy buyer coming in and making an offer the seller couldn’t refuse! Be aware – this does not happen too often. You can hope it will happen for you, but be prepared to take the time necessary to sell your business.