For a founder or owner considering an exit, the timeline for selling a business is one of the most pressing questions. While every transaction is unique, a clear understanding of the M&A timeline is essential for a smooth and successful sale. Walden M&A Principals Dean McDonald and Bob Tankesley share their insights on what a business owner can expect and how to proactively manage the process.
The Critical Role of Preparation
The most important factor influencing the timeline of an M&A transaction is preparation. This begins with the business owner being mentally and emotionally ready for the journey ahead.
“The onus is on the seller to start thinking like a buyer, and present an optimized business opportunity to the buyer pool,” says Bob Tankesley, a principal at Walden M&A. He suggests a three-year preparation period to ensure any changes made are sustainable and the increase in value is transferable to the new owner.
A prepared business owner should also have all their financial information and advisors aligned before going to market. McDonald emphasizes a solid financial footing as a key component. “There’s nothing worse than going into due diligence and then having things pop up you weren’t ready for or even expected,” says Dean McDonald, a principal at Walden M&A.
The M&A Journey: A Breakdown of Key Phases
The M&A Sell-Side process can be broken down into four key phases: Planning, Search, Deal Making, and Closing.
Planning Phase: This stage involves interviewing the seller, conducting a valuation, and developing a marketing plan. It typically takes 30 to 60 days.
Search Phase: An M&A firm prepares key documents, like an executive summary and teaser, and performs a detailed search for qualified buyers. This phase is highly variable, taking 60 to 90 days or longer to find the ideal buyer.
Deal-Making Phase: Once the right buyer is identified, this stage involves negotiating a deal to the letter of intent, which can take approximately 30 days.
Closing Phase: This final phase includes due diligence and the ultimate negotiation and closing of the deal.
The overall process can take six to seven months on the short end, or up to a year or two for more complex transactions.
Tankesley emphasizes a common industry phrase: “Time kills deals.”
“The longer a transaction takes, the more opportunity there is for things to go wrong. A well-managed process helps to mitigate those risks and keep the timeline on track,” says Tankesley.
Mitigating Due Diligence Delays
Due diligence is a critical phase and a common source of delays. McDonald recommends a business owner secure a quality of earnings report (QoE) before going to market. This independent review of the company’s financials can uncover red flags, like undisclosed payroll tax issues or a key employee’s criminal background, which can surprise and deter a buyer.
A lack of collaboration among the seller’s advisory team is a frequent problem. “Much of what buyers encounter (and dislike) in the due diligence process is preventable,” says Tankesley. “A strong, unified deal team of advisors can anticipate and address issues such as poor financial reporting or contingent liabilities, which in turn helps preserve the integrity of the deal.”
The Value of an M&A Partner
An experienced M&A firm brings significant value beyond simply finding a buyer. Firms like Walden M&A can accelerate the timeline and avoid common pitfalls for several reasons:
- Extensive Buyer Networks: A reputable firm with a long history has a wide network of private equity groups, family offices, and corporate investors to draw on.
- Strategic Buyer Identification: An experienced firm knows which segment of the buyer pool to approach with a given opportunity. This is a crucial element of the sell-side process.
- Collaborative Approach: Walden M&A utilizes a team-based approach to triage each opportunity on the front end. Multiple eyes on the situation can help prevent a deal from going off track and increase the chances of a successful outcome.
Post-Closing and Setting Expectations
Once a deal is done, the post-closing and integration period can last from two weeks to six months or more. A seller should be prepared for continued involvement to ensure a smooth transition of employees and customers to the new owner. A relatively new development is the increased use of an earnout, where a portion of the total payout is contingent on the company’s performance after the sale.
Finally, business owners need to have realistic expectations regarding the value, timeline, and effort for a sale. McDonald explains his role is to provide them with a realistic expectation from the very beginning. By offering stories and examples of the process, he helps a seller understand their own critical role in getting everything completed smoothly.
If you are a business owner and are ready to explore your M&A options, the Walden M&A team is here to help. Our expertise and process can guide you through a successful transaction.