Do you know the five M&A myths that, at best, lower your valuation, and at worst, kill the deal?
You should, but likely don’t.
When it comes to selling your company, you have one chance to get it right, and you better make it count.
The truth is your future buyer is counting on you to believe M&A myths and make mistakes.
Why?
Every mistake you make lowers your company value and lines the pocket of your future buyer.
Who am I, and how do I know?
I was that kid who started his eLearning company right out of school with no money, experience, or team. I had no business being in business, and the results showed.
My saving grace was my grit and passion, which kept me in the game long enough to experience success. My business success had me receive an unsolicited offer.
The offer came from an experienced and sophisticated buyer who was a wolf in sheep’s clothing.
In saying “no” to a 7-figure three times EBITDA offer, I said “yes” to master the art and science of selling a business.
Two years later, I said “yes” to a different buyer with a 9-figure offer based on 13 times EBITDA.
My company value increased 10X even though it was the same service, offering, and people.
How did I do it?
I stopped believing five M&A myths.
What are the five M&A myths?
Keep reading.
M&A Myth 1: Unsolicited Offers Are The Best Offers Because They Save You Time And Money
A lie gets halfway around the world before the truth has a chance to get its pants on. – Winston Churchill
On the surface, an unsolicited offer saves you the time to prepare your business for sale. You also save the fees paid to an investment banker.
As you look at all those zeroes, you see yourself riding off into the sunset, happy and rich.
What’s wrong with an unsolicited offer?
Everything.
Unsolicited offers are popular is because they work for buyers.
Your future buyer is smart and experienced and is counting on you to make mistakes.
Read and prosper from “Do You Know The 7 Mistakes Every Buyer Wants You To Make When Selling Your Business?”
Every mistake lowers your company value and lines your buyer’s pocket with your money.
By saying “yes” to an unsolicited offer, you’re saying “no” to the opportunity of an auction.
Selling your business through an auction keeps buyers on their best behavior. At the same time, an auction increases your company value.
Who wouldn’t want a handful of buyers competing against each other to buy your company?
The answer is the buyer who sent you the unsolicited offer.
When it comes to selling your company, you have one chance to get it right, and you better make it count.
Start by hiring an investment banker who will help you get organized and set up an auction for you.
The extra time and money you pay is a rounding error compared to the increase in your company value.
Ready for the next M&A myth that, at best, can cost you untold millions and, at worst, cost you the deal?
Keep reading.
M&A Myth 2: Believing You Can Sell Your Business On Your Own
A myth is an old lie that people believe in. – Ernest Gaines
Do you believe that the skills that built your business are the same ones needed to sell your business?
Think again.
Don’t fall victim to the M&A myth that has you believing you can sell the business on your own.
The truth is that you need an exit team to protect you and help you get the highest value for your company.
Read and prosper from “5 Unbelievably Stupid Exit Team Mistakes That Buyers Want You To Make.”
Most M&A exit teams consist of the following advisors:
- Investment bankers
- Accountants
- Tax specialists
- M&A lawyers
- Key management team members
There are two more exit team members that most business owners don’t include but should.
First, are your key customers. At the right time with the right message, reach out to key customers. Your buyer will speak to these customers anyway.
Second, is a Chief Exit Advisor.
Read and prosper from “A Chief Exit Advisor: What You Need To Know To Dominate And Win.”
You don’t know what you don’t know, but your exit team does.
The M&A myth that you can sell your business on your own is a myth.
The right M&A exit team keeps not only protects you but helps ensure you maximize your company value.
The time and costs of your exit team pale in comparison to the higher business value you’ll receive.
When it comes to selling your business, stop believing the M&A myth that you can sell it on your own.
Ready to learn the one mistake business owners make that can cost them everything?
Keep reading.
M&A Myth 3: Believing That Your Deal Will Close No Matter What
The most important question anyone can ask is: What myth am I living? – Carl Jung
Imagine that you’ve hired an investment banker, went through the process, and signed a deal.
Congratulations, you’re all set, right?
Not so fast.
M&A Myth 3 has you believing that once you’ve signed your deal, it will close no matter what.
As an example, suppose your auction process has you considering the top two offers.
One offer pays you more money, but the buyer requires outside financing.
The other offer pays you less money, but the buyer has the money in the bank and requires no financing.
The offer that pays you more money is the one you should go with, right?
M&A Myth 3 will have you say “yes.”
The actual answer is it depends.
If your buyer requires outside financing to pay you, answer two questions:
- Does the buyer have a proven track record for deals similar in size to yours?
- Is the state of the economy such that outside financing is likely?
If the answer to either of the two questions is “no,” your deal may not close.
Even if you answered “yes” to both questions, there’s still a risk your deal won’t close.
What’s the better choice?
Only you can answer the question as it depends on your risk tolerance.
On the bright side, by debunking M&A myths, you are making a decision eyes-wide-open.
When it comes to selling your company, ignorance is not bliss.
Speaking of ignorance, do you know the one M&A myth that sounds too good to be true because it is?
Keep reading.
M&A Myth 4: You Can Time The Market When Selling Your Company
Only liars manage to always be out during bad times and in during good times – Bernard Baruch
M&A Myth 4 has you believe that you can time the market to sell your company at the peak.
If someone tells you that you can time the market and win, stop what you’re doing and run. Run in the opposite direction as fast as you can.
One of the many lies business owners tell themselves is that they can and will time the market.
Read and prosper from “This Is What Happens When You Believe The Lies Business Owners Tell Themselves On Their Exits.”
The truth is nobody can time the market.
What can you do?
I have great news.
Grow your business and keep it forever, or sell it tomorrow, the strategies are the same.
In other words, it’s time to prepare so that when an opportunity comes knocking, you call the shots.
The choice is yours, and you win either way.
Preparation trumps M&A Myth 4 and also takes down the next M&A myth.
Speaking of the next M&A myth, do you know the one decision you need to make today so you can prosper tomorrow?
Keep reading.
M&A Myth 5: All Sellers Must Accept A Large Earnout, No Matter What
Control your own destiny or someone else will – Jack Welch
M&A Myth 5 has you believe that you must accept a large earnout when you sell your business, no matter what.
Buyers always prefer a large earnout, which is why this M&A myth still exists.
Read and prosper from “This Is What Happens When You Trust A Buyer For Your Business Who Does These 5 Toxic Things.”
What’s wrong with an earnout, especially if it adds more value to your company?
The chances of you receiving your full earnout are slim to nil.
Why?
Your earnout depends on the financial projections you provided during due diligence.
The buyer now controls your fate and has zero incentive for you to meet your projections. Expect expenses to go up and profits to go down after the sale.
Overcome M&A Myth 5 by negotiating hard against an earnout at all costs. Expect resistance from the buyer for obvious reasons.
You have more leverage than you think, especially in two key areas.
First, your company solves a painful problem for your buyer.
Second, in debunking M&A Myth 1, you learned the power of an auction. When you have many companies wanting to buy your company, you have choices.
At the start of the auction, you can make it clear to potential buyers that an earnout is a non-starter.
Yes, you may lose some buyers, and that’s OK. The remaining buyers are on your terms.
When you say “no” to M&A Myth 5, you’re also saying “no” to frustration, disappointment, and pain.
Do the smart thing and stay away from an earnout.
Conclusion
M&A myths exist to benefit the buyer instead of you.
Your future buyer is smart, sophisticated, and experienced.
Most sellers don’t know what they don’t know, and ignorance is not bliss.
The skills that built your business aren’t the same ones needed to sell it.
Who am I, and how do I know?
I was that kid who started his eLearning company right out of school with no money, experience, or team.
The truth is I had no business being in business, and the results showed.
My grit and passion kept me in the game long enough to achieve success.
With success brought attention that resulted in a 7-figure unsolicited offer. The offer, based on three times EBITDA, was from a wolf in sheep’s clothing.
In saying “no” to the unsolicited offer, I said “yes” to mastering the art and science of selling a business.
Two years later, I said “yes” to a different buyer who had a 9-figure offer based on 13-times EBITDA.
My company value increased 10X even though it was the same company, people, and service.
What made the difference?
Dispelling the M&A myths I’ve shared in this article.
Today, my focus is on leveling the playing field for business owners. In the process, business owners learn how to extract the deep wealth they never knew they had.
We are dreamers, the make-it-happen people, and the change-makers. It’s us, the business owners who put everything on the line and win against all the odds.
You’ve worked too hard and sacrificed everything. Don’t allow yourself to get ripped off.
What can you do and where do you start?
Start with M&A Myth 1 until you learn and master it. Move on to the next M&A myth until you’ve mastered all five.
You can do it. I know you can.
Here’s to you and your success!
Your Biggest Raving Fan,
Jeffrey Feldberg
Today, Feldberg's passion is helping you extract your deep wealth. The 90-day Deep Wealth Mastery program helps create a solid foundation for three areas: increasing profits to enterprise value and optimizing post-exit life. Deep Wealth Mastery offers strategies and insights drawn from Feldberg's rich experience. The strategies from the trenches get results. Jeffrey's vision is to increase the social fabric of society one entrepreneur at a time.
Learn more through https://iapdw.com/prosper
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