Questions from acquirers and owners
Acquiring or selling a business involves terminology and decisions that most people encounter only a few times. The answers below address the questions we hear most often, and we are glad to discuss any of them directly.
Questions from acquirers
What does a buy-side advisor do?
A buy-side advisor represents the acquirer. The work typically covers sourcing and screening targets, valuation, structuring and negotiating the offer and letter of intent, managing diligence, coordinating financing and carrying the transaction through the purchase agreement and closing. The advisor’s job is to protect the buyer’s price and terms, not to close a transaction at any price.
When should we engage you?
Earlier is better, because the most consequential terms are set in the letter of intent. Some acquirers engage us before a search begins; others bring us a specific target or a signed LOI. We can be useful at any of those points, but structure and the working capital peg are much harder to change once exclusivity has begun.
How are most Main Street acquisitions financed?
Most combine buyer equity, a seller note and senior debt, often an SBA 7(a) loan. Some add an earnout or rollover equity to bridge a difference in value. The right mix depends on the buyer’s capital, the business’s cash flow and current lending conditions. Lenders apply their own requirements on equity injection and seller note standby, so the structure should be tested with a lender before the LOI is signed.
How do you find businesses that are not publicly marketed?
Many owners of sound businesses have not decided to sell, or would prefer not to advertise the fact. Using criteria agreed with you, we approach owners directly and in confidence, and through their CPAs, attorneys and other advisors.
What is an independent sponsor?
An independent sponsor identifies and negotiates an acquisition before raising the equity to fund it, usually from family offices or other investors, one transaction at a time. A sponsor needs a target that will withstand an investor’s scrutiny and a structure that works for the lender, the equity partners and the seller at once.
Do you require an NDA?
Yes. Information about companies we represent is shared only after a buyer signs our mutual NDA. When we advise an acquirer, we treat its criteria, targets and offers with the same confidentiality.
Questions from business owners
What is my business worth?
A business is worth what a qualified buyer will pay for it, and that figure is driven principally by normalized earnings and the risk a buyer attaches to them. We recast your financial statements, compare the business with relevant market evidence and provide a supportable range, together with the factors most likely to move it.
Will my business be advertised on public websites?
No. We do not advertise the companies we represent on public marketplaces or business-for-sale websites. Each buyer is approached directly, signs our mutual NDA and is qualified before learning the company’s identity.
How is the buyer set chosen?
We start from what makes the business valuable and who is in a position to pay for it: competitors and adjacent companies, private equity platforms pursuing add-ons, independent sponsors, family offices and individuals with relevant experience and financing. You review the buyer set before outreach begins and approve each buyer before your identity is disclosed.
Why engage an M&A advisor rather than sell independently?
A sale process places substantial demands on an owner’s time at the same moment the business needs to perform. An advisor prepares the company for market, identifies and approaches the right buyers, qualifies them and manages negotiation and diligence, which allows you to remain focused on operations. A focused, well-documented process also gives you a clearer basis for comparing offers on value, structure and certainty of close.
How are engagement terms set?
Engagement terms are discussed privately after an initial confidential conversation, once we understand the business and your objectives. Scope and terms are documented in writing before any work begins.
Will my employees or customers find out?
Not through us. The business is presented under a project name, every buyer signs an NDA and is qualified before learning its identity, and buyers are not permitted to contact employees, customers or suppliers. When the time comes to inform key employees, we help you plan the timing and the message.
What is the difference between Main Street and lower middle market?
There is no formal definition. We generally regard businesses valued under $2 million as Main Street and those above $2 million as lower middle market. Main Street transactions more often involve individual buyers and asset purchases, frequently with SBA financing. Lower middle market companies attract private equity groups, strategic acquirers and buyers from outside the region, and transaction structures are typically more involved, often including seller notes, earnouts or rollover equity.
What is a confidential information memorandum?
The confidential information memorandum is the principal marketing document for the business. It presents the company’s history, operations, customers, workforce and recast financial performance, and it is provided only to buyers who have signed an NDA and been qualified.
What is a quality of earnings review?
A quality of earnings review is an independent analysis, usually engaged by the buyer or its lender in larger transactions, that tests whether reported earnings are accurate and sustainable. Sellers who have prepared clean, reconciled financial statements and documented their adjustments are in a much stronger position when that review takes place.
What is a working capital peg?
Most purchase agreements assume the business will be delivered with a normal level of working capital. The peg is that agreed target, and the purchase price is adjusted at closing if actual working capital falls above or below it. Because it bears directly on the proceeds you receive, it should be negotiated carefully at the letter of intent stage.
How long does a sale usually take?
Timing depends on the size and complexity of the business, the condition of its financial records and the buyer’s financing. Thorough preparation is the most reliable way to shorten the process. After an initial conversation we can give you a realistic view of timing for your situation.
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