By Carol Frank and Craig Lawson
Are you a thriving pet company that is considering raising growth capital or exiting your business in the next few years? If so, navigating the twisting channels of M&A can be costly and tricky if you aren’t prepared well in advance of implementing the process. Your chances of a sale going smoothly will be greatly enhanced by following some well-researched guidelines that my colleague at MHT Partners, Craig Lawson, and I have learned in our combined 30+ years of helping business owners buy or sell companies.
- Know yourself, know your company, and know what you want to do. Selling your company is a significant undertaking (oftentimes, other than starting your company, the most important business decision an owner will ever make). Educate yourselves on the options at your disposal, and give strong thought as to the pros and cons of each (and if you don’t know exactly what the ideal outcome looks like, maintain flexibility in your thinking and empower your advisors to create options for you). Are you looking to exit 100%, or are you considering taking on an equity partner? Those two scenarios can be vastly different in terms of how a sale process is executed and you will want to discuss each of them in detail with your M&A advisor.
- Purchase price is not the only consideration. While purchase price is certainly important, there are many other considerations a business owner can and should evaluate. These considerations include, amongst others, cultural and strategic fit, contractual legal terms, speed and certainty to close. Certainty to close means that the buyer has been fully vetted that they have the resources to get the deal across the finish line.
- Start preparing for a sale transaction well in advance. Make sure your personnel, systems, reporting and records are in order – having “your house in “order” will increase the value of your business, increase the interest you will attract, and increase the speed and certainty that you get to close. We recommend you pay particularly close attention to your accounting system and records and make sure that you will be able produce timely and accurate income statements and balance sheets. There’s virtually no possibility that a deal of any meaningful size (over a few hundred thousand dollars) can get done without them.
- Hire good advisers and keep your eye on the ball. Selling your company can be a full-time job and when combined with running your business, the situation can be overwhelming. A good accountant, a good M&A attorney and a good investment banker (the latter two engage in transactions for a living) can significantly ease the “brain-damage” of going through a transaction and allow you to focus the majority of your time on running the company. We always advise our clients to continue to do what is strategically right for your business and not alter the course based on the vagaries of the sale process.
- Growth prospects drive valuation. It’s important your company continues to perform and grow (“grow” being a relative terms) during an M&A process, and it’s crucial that you leave some “gas in the tank” in the form of growth, for the next buyer. The more gas you leave in the tank, the more likely you are to command a premium multiple of EBITDA. In contrast, one of the worst times to sell your business is when your revenues are on the decline, as that will almost certainly result in a lower multiple.
While this list is by no means fully inclusive, taking these five considerations to heart will result in an easier, more enjoyable, and more successful transaction.
Carol Frank of Boulder, CO, is the founder of four companies in the pet industry and a Managing Director with BirdsEye Advisory Group, where she advises pet companies in M&A transactions and Exit Planning. She is a former CPA, has an MBA, is a Certified Mergers and Acquisitions Advisory (CM&AA) and holds Series 79 and 63 licenses. She highly values and incentivizes referrals and can be reached at cfrank@birdseyeadvisory.com.
Craig Lawson is a Co-Founder and Managing Director at MHT Partners and has over 25 years of sell-side and buy-side experience. He brings deep experience with consumer products and co-leads MHT’s Consumer/Retail industry practice, with a particular focus on the pet industry. Prior to co-founding MHT Partners, Craig served as a senior banker in the San Francisco office of Harris Williams & Co, Banc of America Securities and Bear Stearns. Craig holds an MBA from The Wharton School at the University of Pennsylvania and graduated with a BA from Tufts. He also holds the CFA designation. He can be reached at clawson@mhtpartners.com.