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. Not understanding the process ultimately can become critical. Timing often influences the value and other key factors that drive the success of a business sale. Below, we address the question of how long does it take to sell a business. These factors are to be expected and are consistent with IBG Business’s experience when selling middle-market businesses across the USA, whether located in Oklahoma, Pennsylvania, Arizona, or Colorado.
Similar to the fact that no two businesses are exactly alike, the process of selling businesses should be customized to the firm’s specifics. The typical timeline to complete an M&A transaction is from three months to a full year or more. Seldom do sales of mid-market M&A happen sooner than three months. Often, sales that occur quickly at are at subpar prices or terms. Rather than assigning a specific time needed to sell a company, it is best to give an idea of what the (M&A) mergers and acquisitions process entails and how long each stage typically takes to complete.
- Stage One: Information Gathering
- Stage Two: Marketing
- Stage Three: Management meetings
- Stage Four: Letters of Intent and negotiation
Stage One: Information Gathering
Gathering and preparation of the Confidential Information Memorandum (CIM). This stage generally takes anywhere from two weeks to six weeks to complete. The CIM is the selling document used for confidentially marketing your business to prospective buyers. It is a book describing all facets of your business. Containing the history, products and services, core competencies, principal biographies, organizational chart, growth opportunities, and financial performance. Completing the CIM involves gathering a lot of data from you (the seller), so the speed at which the data is readily available has a lot to do with how long this particular phase can take. If it is readily available and the financials are well organized it can be just a few weeks. If that data is not as cohesive, it can take much longer.
During this period, your M&A investment banker, or business broker for small deals, will also be putting together a targeted business buyers list featuring potential strategic and private equity buyers. This is the “market” to be approached at first.
Stage Two: Marketing your business.
This portion of the time it takes to sell 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, is used to identify, attract, and draw in firms that may be interested in acquiring your business. If they are interested in learning more, your business M&A Broker, or investment banker, or business broker buffer the inquiry to ensure a confidentiality or nondisclosure agreement (NDA) is executed before forwarding identifying information or the CIM.
Once a prospect receives the CIM, they will typically review internally. This process can take from several days, up to a month. If they are still intrigued by the acquisition, they will set up an introductory conference call with you and your investment banker, M&A, or business broker. During this call, they’ll give you background on their firm and their objectives before asking any questions they may have for you. Business valuation is rarely discussed during this call. The tone is much more focused on your business, and your objectives are moving forward.
If there are multiple interested parties, there may be a number of similar conference calls. From that point, you and your investment banker, M&A, or business broker will consider and decide which parties you’d like to invite you to meet with 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 (one week to ten days).
These meetings will either take place at your facility or offsite near your office if a potential disclosure conflict might arise with your staff. Serious business buyers understand and respect the need for confidentiality. The meetings generally last one full day. During this meeting 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 come next for allowing for how long it takes to sell a business.
This phase can take two to six weeks. Following the management meetings, buyers will issue a Letter of Intent. Upon receipt of the Letters of Intent (LOIs) your M&A intermediary, investment banker or business broker will summarize the terms of all the LOIs with you. Most of them will look to enter into a period of exclusivity with you once the LOI is signed. Your investment banker, or business broker on small deals, will work with you during this stage to help negotiate the best terms for the sale of your business on your behalf.
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. Also, during the closing phase, attorneys, the purchaser, and sell, and their M&A team will prepare and review the final purchase documents. Once the documents are executed, the transaction is complete.
In summary, one of the most frequently asked questions by business owners looking to divest, 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 the process for selling a business to go up to a year to enjoy a successful business sale.