Whether you’re running a lemonade stand or listing your home, the most useful trait you can cultivate as a seller is patience. Sales not only takes time, but it demands an extraordinary determination and fortitude. You need to be ready for ups and downs, back and forth negotiations, false starts and sudden surprises. And the more valuable the sale, the more intense the process.
Most business owners looking to sell their companies know all of this on a rational level. Many also understand that even in a market as seller-friendly as today’s mergers and acquisitions environment, there’s no one-size-fits-all approach to M&A. In my experience, however, first-time sellers tend to overestimate their luck. They know M&A can be a long, arduous, and costly process, but each seller tends to assume that they’ll be the exception to the rule.
What these sellers don’t realize is that much of the potential stress and uncertainty of M&A can be avoided by setting the right expectations early on in three fundamental areas: deal complexity, timing, and fees.
The sale of a business is likely the most sophisticated and largest transaction a seller will encounter in the course of their career. There’s a reason most only go through with it once. Even with years of preparation, no owner can fully predict the myriad of issues and uncertainties in M&A until a buyer commences diligence.
Most sellers sincerely believe their businesses are clean and simple. Usually both are false. Problems within the business get clouded by resource limitations, as well as ordinary bias—owners are too close to their businesses to assess them objectively. As a result, the seller ends up with three jobs in a transaction: first, to maintain their ongoing business operations at a high level; second, to sell their business; and third, to clean up their business.
The complexity of M&A also affects expectations around timing. Because of their false presumptions — that their businesses are in perfect shape for sale — many sellers believe they can consummate a deal in 30 days or less. Rarely are deals consummated that fast. Aside from the seller, virtually any prospective buyer, as well as third party actors such as banks and landlords, needs more time to conduct diligence, pull up paperwork, and negotiate terms.
Moreover, almost no deal should move that fast. While a deal that drags on spells trouble for sellers, so does an overly hasty one. Sellers need protections. By rushing through a transaction, a seller will almost certainly create serious legal and financial problems for themselves down the line. Simple documents with simple terms are not always good ideas for sellers. Less is not always more.
M&A is not an inexpensive proposition. Sellers should be prepared to spend more on advisors than they may have ever spent during the business lifecycle. M&A is like no other transaction and thus the fees are likewise.
In short, make sure to set aside more than you think you’ll need to sell your business. Even if you achieve ideal terms, you’ll need to be ready to cover any trailing liabilities post-closing. An experienced M&A lawyer can help you eliminate these proverbial skeletons in the closet, maximize your returns, and negotiate your way to the top — all while keeping you and your bottom line protected.
ABOUT MICHAEL N. MERCURIO
Business attorney and M&A lawyer Michael N. Mercurio serves as outside general counsel on matters related to business law, M&A, and real estate law. As a strategic partner to firm clients, Mr. Mercurio regularly counsels entrepreneurial individuals and assorted entities on all aspects of business and commerce, with a core specialty in mergers and acquisitions—both from the sell side perspective and buy side perspective.
ABOUT OFFIT KURMAN
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