Closings Often Enter Overtime
When selling your business, you want to make sure you understand in advance what is a realistic closing timeline. It normally takes six months to one year to close (sell) a business. During the pandemic this timing stretched longer. One way of looking at the Mergers and Acquisition (M&A) process is to relate it to a three-period hockey game.
Period One (First 1- 3 months)
In the opening period things are new and fresh. You’re not sure how you will be perceived in the market. Your broker coaches you along to put you in the best position to sell. Your goal in the first period is to have your marketing materials completed and to have your broker research the market of buyers that will be the best fit for an acquisition. This could be strategic, financial or owner operator buyers. Buyers are approached in the first period.
Period Two (Next 2-6 months)
When you enter the second period your broker will have vetted the best potential buyers and will have set up buyer-seller meetings. These meetings can take time and pull you away from running your business. Your broker will help make sure you’re meeting with buyers that are serious and financially capable. While in the second period, you should be reviewing non-binding Letters of Intent (LOI) and eventually selecting one LOI to sign. Due diligence now begins.
Period Three (Final 6-9 months)
During the third period both sides are working to finalize the binding Purchase Agreement (PA). M&A attorneys become very active with this process. Due diligence continues. As a seller you want to make sure due diligence has a deadline. During this period financing reaches full approval and a closing date is set.
This past month, Transitions In Business reached the third period with two transactions. Yet, due to SBA financing issues, they both went into overtime. A cabinet manufacturer was scheduled to close August 3, 2021 yet was pushed out to August 26th. A Residential Assisted Living business was set to close August 31, 2021 but closed September 9th. As a tip to future business sellers, be prepared for the possibility of your closings moving beyond the original scheduled date. Having this expectation in advance makes it much easier to accept if it happens.
This article was written by Sam Thompson. Sam is the president and owner of Transitions In Business, a Minnesota based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution and construction/trade services companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business.