November 2023 Newsletter
Optimize the Sale Price of Your Company
The sale process involves sellers and their advisors focusing on critical areas to prepare the company for sale, secure the right buyer, negotiate the price and terms, perform the required due diligence, finalize legal agreements and complete the transaction. Selling your company takes time so get the preparation and sale process started early on.
Critical Steps to Optimize Your Sale Price
Secure an M&A advisor from the on-set to greatly impact the success of your sale process. The preparation for the sale of your company is paramount, and an experienced M&A advisor will tremendously enhance your value during this preparation work. The most important aspects of preparation require expertise, planning and proper execution in creating a professional Data Room.
We highly recommend gaining expertise early on by assembling your M&A advisory team including a 1) M&A advisor, 2) Corporate/transaction attorney and 3) a CPA or tax attorney. This team will enable you to both increase your business’ value and arm yourself to defend its value during all negotiations through the closing.
Below are critical areas to optimize your sale price:
Preparation and Data Room - Preparation for the sale of your company includes setting up a professional Data Room with a range of information that a serious buyer would request in order to provide their best offer. This is accomplished by having an experienced M&A advisor to provide hands-on guidance to produce and assemble this information. Proper preparation by experts will add tremendously to optimizing your sale price.
Importance of Metrics - Update your metrics and key performance indicators (KPIs) for recurring Revenue businesses, such as Customer Churn, Revenue Churn, Growth Rate, Net Revenue Expansion, etc. Deals are made or lost by having strong KPIs and metrics, which have a major impact on the value to buyers. Your M&A advisor will be key in producing these metrics in a Management Dashboard and presenting your company to potential buyers in the best light.
Accurate Financial Statements - Quality accounting and accurate, up-to-date Financial Statements reduces the risks to buyers and will enhance your opportunity to secure an offer at an optimal price. Your M&A advisor should be extremely competent in finance and accounting and provide the advice and expertise to address the buyer’s requests. Your CPA firm will play a critical role, as well.
Key Man Issues - Over-dependence on one or a few individuals in your company increases the risk to the buyer of the Revenue stability or Operational viability of the company. Your M&A advisor should position you and your management team as solid and attractive to buyers. The need for additions to the management team or cuts in the staff should be taken seriously.
Client Concentration - Buyers discount the value of companies that are overly dependent on a small number of customers, or one or two very large customers. This is called Client Concentration Risk. No one customer should constitute 25% of your Revenue, and you should have a range of larger, long-term contracted customers in order to present a stable, contracted, recurring Revenue stream.
Profit Maximization - Sellers can achieve a much higher valuation by maximizing Net Profit and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). An upward trend in Sales and Net Profit is a major value driver. Remain focused on Sales, ensure you have implemented an appropriate price increase, limit new hires prior to a sale, and use attrition to your advantage to reduce expenses when possible, in order to maximize Net Profits, EBITDA and increase your value.
Defer Write-offs and Delay New Expenses - Sellers should strive to make their Financial Statements for the twelve months leading up to the sale as clear, attractive and profitable as possible. Be strategic about managing your business leading up to a sale, and your M&A advisor will provide the needed advice and guidance. Prudent decisions such as delaying certain expenditures or new hires will serve you extremely well in a sales process.
Normalize Your Financials – Create Adjusted Financial Statements by removing from your Financial Statements a) One-time costs and expenses, b) Discretionary expenses and c) Acquisition-related expenses in order to increase the value to the buyer. Provide buyers with your Adjusted Financial Statements that optimize your Net Profit and EBITDA and value in a "normalized" state. Your M&A advisor will work with you to create Adjusted Financial Statements.
Quality of Earnings Report - Obtaining a trusted third party’s expert opinion on your business’ financial performance and accounting practices is both affordable and prudent for sellers in the small end middle market and can pay for itself many times over. This does not mean an Audit, rather a simpler, far less expensive Quality of Earnings (QoE) report by a CPA firm. Your M&A advisor can manage this important step for you.
Prevent Trading Down - Once the seller accepts an exclusive, non-binding Letter of Intent (LOI)(exclusive in that the buyer will likely ask for a No-Shop provision for 45 to 90 days), it becomes harder to head off negotiations for reductions in price especially at the end of the Due Diligence period. Head off any opportunity of your buyer trading down on price and terms by preparing and maintaining current KPIs and metrics to present value, attack any weaknesses head-on, and focus on the Due Diligence Process to satisfy your buyer.
Promote and Divulge All Intellectual Property - Include all intellectual property in the Data Room such as trademarks, patents, domain names and a description of any proprietary software that will provide value to buyers. This is downplayed in too many deals, but it can represent substantial value to buyers.
Resolve Legal Suits – Make it a priority to resolve any open or pending lawsuits prior to beginning a sale process. The universal rule is “Don’t spook the buyer.” Buyers have a tremendous aversion to lawsuits and related legal costs and will greatly exaggerate the risk of law suits, eventually resulting in a discounted valuation or loss of interest entirely. Benign lawsuits can be managed, but major lawsuits should be resolved.
CEO Advisor, Inc. has tremendous experience and expertise in Mergers and Acquisitions for small and mid-market companies. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by mobile phone at (714) 697-3370 by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
CEO Advisor, Inc. Advises Alvaka Networks on Growth and Exit Strategy
- Managed IT Services and Cybersecurity Provider is an Innovator and Industry Leader
- CEO Advisor, Inc. (www.CEOAdvisor.com), a growth and strategy, growth capital and mergers and acquisitions advisory firm, is advising Alvaka Networks, a leading advanced network management, disaster recovery, and ransomware recovery services firm on growth and an exit strategy.
- Since 1982, Alvaka Networks has provided complete network performance, network monitoring, compliance and remediation services, and has offered cybersecurity and ransomware disaster recovery services for nearly a decade. Alvaka Networks provides its full range of services to both mid-market and enterprise level clients worldwide.
- Oli Thordarson, CEO of Alvaka Networks states, “Working with CEO Advisors is proving to be an invaluable resource to get us properly prepared for the most key event in our company history.”
- CEO Advisor, Inc. is advising the company on specific aspects of growth, KPIs/metrics and preparation for a future exit. For over 19 years, CEO Advisor, Inc. has successfully advised CEOs and management teams on strategy, accelerated growth, funding, mergers and acquisitions and an optimal exit by providing the added expertise and management support to achieve its clients’ goals.
- Mark Hartsell, President of CEO Advisor, Inc., states, “Oli and his team at Alvaka Networks are unique given their deep in-house bench and expertise, coupled with their wide offering of IT and cybersecurity services. Their value proposition is tremendous for all mid-size and enterprise size companies. We are very excited to work with the owners of this highly innovative company.”
- About CEO Advisor, Inc.
- CEO Advisor, Inc. provides growth advisory, growth capital and mergers and acquisition advisory services to effectively meet the goals of small to mid-size companies in the software, technology, digital media, healthcare, professional services and other industries, as well as, Private Equity firms to accelerate the growth of their portfolio companies. CEO Advisor's mission is to advise CEOs, presidents, business owners and principal executives with the needed experience, expertise and focus, coupled with hands-on advice to grow their businesses to the next level and realize their life’s dream through a successful exit.
- Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.