MRI for Your Business? - What a Sell-side Process Can Tell You About Your Company
Original Article Posted to LinkedIn, Authored 7.28.2016 by Adam T. Hark, Managing Director, Preston Todd Advisors
Committing yourself, your company, and your employees to a sell-side process can be stressful, distracting, frustrating, and ultimately disappointing if the desired outcome is not achieved – that your company is sold on agreeable business terms. Most owner/operators with quality properties – companies with healthy balance sheets, good EBITDA margins, consistent YOY, double digit top line growth, and interesting, proprietary products and services, especially by way of technologies, find themselves in the advantageous position of not ever having to actually transact, even if that’s their intended objective. These owner/operators always have the option not to sell and pull their property off the market. Thus, for many sellers of quality businesses, the outcome of a formal sell-side process isn’t always an actual sale.
The reasons why many sell-side processes don’t end in a transaction are manifold. One of the more prevalent explanations – and I would argue a misconception – is that when a sale doesn’t consummate, it’s because the price/consideration offered wasn’t “enough”. This notion is patently untrue. There are many reasons why transactions don’t consummate, even when the consideration being offered by a buyer is equal to or greater than the asking price of the seller.
However, there’s an even greater misconception floating out there in the aether about the sales process that I feel must be disabused: that a formal sell-side process which doesn’t end in a transaction is (retrospectively) a waste of time and devoid of value.
I’m a strategy consultant who specializes in payments and financial technologies. I work with CEO’s to design and execute strategies for growth, both organic and inorganic, and exits. I’m an expert in my field. I’ve spent years developing proprietary modeling to determine enterprise and asset valuations. And yet, with all those credentials and experience, there’s no, and I mean NO, commentary, opinion, assessment, evaluation, or examination that I can offer my clients that’s more penetrating, incisive, or meaningful, than that which can be imbibed from the feedback of buyers, concerning the value and quality of their company and assets.
Committing yourself and your company to participating in a formal, sell-side process, and exposing yourself to the scrutiny of sophisticated and knowledgeable buyers is analogous to subjecting the human body to an MRI – things that can’t be seen or detected under normal conditions will be exposed. The good, the bad, and the ugly will be revealed. And in some cases, even imminent death may be averted!
A sell-side process will tell you how the marketplace perceives your operational expertise, sales and distribution, marketing, technology, and management capabilities. It will tell you where your company could be stronger, where it’s weak, where there are obvious opportunities, and what strategies you may want to explore and implement to enhance its value.
Know this: the marketplace is the ultimate adjudicator of your business and its value.
Regardless of what any consultant, advisor, valuation expert, investment banker or broker will tell you, your company’s value will always be equal to what the marketplace is willing to pay for it. Period. Now that doesn’t mean that the expertise of the professional consulting class should be discounted, however, owner/operators need to understand that consultants and advisors are teachers and students, and as such, the knowledge and wisdom (let’s hope) they impart to their clients is based on information from previous experiences. In comparison, a sell-side process provides sellers with market feedback and information inreal time.
If you accept these premises as an owner/operator, and you should, than the exercise of going through a sell-side process can provide you with invaluable insight, direction, and newly inspired ideation for the future; for there will be a time when you again “dip your toes in the water” of a company sale.
If you’ve ever gone through a formal, sell-side process and did not transact, shake off the disappointment and avail yourself of the wealth of information that has been made available to you. Open your eyes and ears and truly process the feedback from the informed suitors who diligently evaluated your property – it’s invaluable information that you couldn’t obtain any other way. It’s not a waste of time. It’s not devoid of value. If you listen to the marketplace, it will most undoubtedly guide you to a more prosperous future.