Many business owners start their exit strategy exploration with a conversation focused primarily on business value expectations. But few have a real understanding of the length or breadth of the business sale process.
Understanding the process is critical. Timing often influences the value and other key factors that drive the success of a business sale. And, just as no two businesses are exactly alike, the process of selling a business should be customized to the company’s specifics. Also important is letting the process play out; sales that are rushed to a closing tend to be for sub-par prices or terms.
Below, we address the frequently asked question, How long does it take to sell a business? We will discuss some of the important factors one should anticipate – factors that are consistent with IBG Business’s experience in selling middle-market businesses from our offices in Oklahoma, Pennsylvania, Arizona, Nevada and Colorado.
The typical timeline to complete an M&A transaction is from three months (and rarely sooner than that) to a full year or more. Rather than assigning a specific time needed to sell a company, it is best to give an idea of what the M&A process entails and how long it typically takes to complete each of six major stages.
- Information Gathering
- Management Meetings
- Letters of Intent and Negotiation
- Due Diligence
Stage One: Information Gathering (2 to 6 weeks)
Preparing the Confidential Information Memorandum (CIM) generally takes anywhere from two to six weeks. The CIM is the selling document used for confidentially marketing your business to prospective buyers. It describes all facets of your business: history, products and services, core competencies, principal biographies, organizational chart, growth opportunities, and financial performance. Completing the CIM involves gathering a lot of data, primarily from you (the seller), and the degree to which the data is readily available has a lot to do with how long this particular phase will take. If it is readily available and the financials are well organized, it can be just a few weeks; if not, it can take much longer.
During this period, your M&A advisor, investment banker or, for smaller deals, business broker will also be putting together a targeted business buyers list featuring potential strategic and private equity buyers. In most cases, this is the “market” to be approached first.
Stage Two: Marketing Your Business (3 to 6 months)
This stage in selling a business typically takes anywhere from three to six months. The marketing phase is initiated when your investment banker, M&A broker or business broker sends a “blind profile” teaser. This brief introduction, which does not disclose the identity of your business, is a one or two-page document used to identify, attract, and draw in firms that may be interested in acquiring your business. If they are interested in learning more, your M&A broker will buffer the inquiry to ensure that a confidentiality or nondisclosure agreement (NDA) is executed before forwarding the CIM or other identifying information.
Once a prospect receives the CIM, they will typically review it internally. This process can take from several days up to a month. If the prospect remains intrigued by the acquisition, they will ask for an introductory conference call with you and your M&A broker. During this call, they will likely give you background on their company and their objectives before they ask any questions of you. Business value is rarely discussed during this call; the tone is much more focused on your company and its attributes.
If there are multiple interested parties, there may be a number of similar conference calls. From that point, you and your M&A broker will consider and decide which parties you would like to meet in person. Depending on how many interested parties there are, most sellers will meet face to face with up to five prospective acquirers of your company.
Stage Three: Management Meetings (7 to 10 days)
These meetings will take place either at your facility or, if a potential disclosure conflict might arise with your staff, offsite. Serious business buyers understand and respect the need for confidentiality. The meetings generally last one full day. During these meetings, potential buyers or investors will use the time to learn more about your business and discuss a possible transaction.
Stage Four: Letters of Intent and Negotiation (2 to 6 weeks)
Following the management meetings, a serious buyer will issue a Letter of Intent (LOI). Upon receipt of the LOI, your M&A broker will summarize its terms for you. With the signing of the LOI, most buyers will seek to enter into a period of exclusivity with you. Your M&A broker will work with you during this stage to help negotiate on your behalf the best terms for the sale of your business.
Stage Five: Due Diligence
Once you have signed the LOI with a prospective buyer, they will spend four to six weeks on due diligence, which typically includes confirmation of all the data received to date, including a quality of earnings report.
Stage Six: Closing
During the closing phase, the buyer and seller, their attorneys, and their M&A team will prepare and review the final purchase documents. Once the documents are executed, the transaction is complete.
How long will it take to sell my business? As outlined above, to achieve the best price and terms, it rarely can happen in less than three months, and a seller should be prepared for a successful sale to take up to a year, and perhaps more.