Many founders think that M&A just happens. I’ve even heard founders say “I’ll get hot and buyers will find out about us and make offers.” This isn’t an exit strategy – it’s wishful thinking. And even if you got a pre-emptive offer, how do you know it’s good? You won’t know until you engage in a competitive M&A process to get feedback, other offers and evaluate deal structures. Sometimes the biggest number is not always the best deal for you as the founder or the company’s long-term viability.
The truth is that M&A is a process. Just like the decisions you make about investing in a new product or service; important project; or other type of growth plan, you need to conduct due diligence and the proper amount of preparedness. You wouldn’t just start developing a new product without doing market research and understanding its potential impact to your company, so you shouldn’t evaluate starting on the M&A path any differently. At the time you begin thinking about your exit, you should consider an exit readiness roadmap.
The M&A process should begin anywhere from 6-12 months before the sale of your company. There are many things that contribute to this timeline, such as financial preparedness; state of sales growth; the state of your industry and your market position within it; key employees; and other considerations. You also need to find a good M&A advisor to represent your company. You need to find someone who doesn’t see you as a deal, but who really understand what you want from the exit and how to position your company for the highest value. It may take time to meet several M&A advisors before selecting the right match for your company.
So, how do you get there? I’ve developed an Exit Readiness Roadmap.
In my work with lower middle market companies, I understand the disparities. I was once there myself as the founder of a lower middle market SaaS platform. When we decided it was time to exit, there weren’t any M&A advisors who focused on the lower middle market. You could choose from brokers or investment banks. Most investment banks won’t even talk to lower middle market companies because the deal size is not big enough. And brokers don’t offer the services needed to position your company for the maximum value. But now, there is a choice – I am 100% focused on the lower middle market.
The best way to enter an M&A process is to be totally prepared. You should know how buyers will formulate your valuation based on these areas:
- Industry (growth, CAGR, value);
- Specific market position; product/service you offer and the problem/solution it solves;
- Differentiators and innovation;
- Growth strategy;
- Financials (current, historical and projections);
- Business model;
- Scaling potential; and
Many times, the M&A process starts without these areas being addressed in a meaningful way. I’ve created an Exit Readiness Roadmap that evaluates each of these areas and, upon completion, I provide a plan of what needs to be done in order to be ready for an M&A process. Think of it like an internal audit that helps you understand where you have strengths and weaknesses. This gives you time to shore up areas of your company before you start sharing your information with potential buyers. The areas for improvement can take time, especially if sales growth or financial clean-up is needed. It’s best to start early and work on your positioning before you start the process.
Some companies offer exit readiness assessments that you can complete on your own. While this may be an option for you, my services are wrapped around M&A consultation as well. I will walk you through how buyers will evaluate your company and provide guidance, rather than making your company fit into a ‘one size fits all’ questionnaire. Your industry, company and your exit desires as a founder are all unique and need to be evaluated within the framework that fits you, not every company across the globe.
There are a number of reports about M&A during this unprecedented time we live in – many project gloom and doom, while some optimistically showcase the opportunities that can arise in a time of crisis. You may think that engaging in an M&A process is not a good time right now for your company and you could be right, depending on your industry. However, going through the Exit Readiness Roadmap now will position you for exit when you are ready whether that is 6, 12 or 18 months away. And, if nothing else, all of the enhancements you will make during the roadmap process will make your company better in the long run. So, it’s a win-win in any way that you evaluate it.
By utilizing an approach like my Exit Readiness Roadmap, we will also collect most of the information needed for the Confidential Information Memorandum (CIM). This is an overview of your company that is used in the M&A process to tell your unique story and position you for the maximum value. The CIM is important because it must stand alone and tell your story effectively. In the M&A process, there is not always the opportunity to walk a buyer through the CIM before you meet. And I see so many founders who want to make the CIM all about their technology, but it really needs to be the story about the value that you bring. M&A is not about cost; it is about value. The CIM is an incredibly important component to justify your value.
You may find at the end of the Exit Readiness Roadmap that you are ready to begin the M&A process or you may need to wait until your roadmap is complete. Either way, once you have completed all of the steps, you will be much better prepared for a successful and profitable exit.
Contact me to learn more about my Exit Readiness Roadmap, CIM creation services and M&A success-fee based referral services. I like to work with companies in all stages to form a lasting working relationship that has mutually-beneficial rewards.