In over 20 years of selling companies, we have observed a recurring psychological pattern among business owners. For most companies sold by Business Acquisition & Merger Associates (BAMA), the decision to sell wasn't the result of a seller’s rigid five-year strategic plan. Instead, it was an ‘epiphany moment’ – business owners waking up one morning with the realization that it was simply time to exit.
However, while the decision to sell can happen quickly, the execution cannot. Even when an owner is ready to move at lightning speed, the market demands a more disciplined pace.
In the lower middle market, a standard transaction spans six to nine months from engagement to close. While outliers exist, the timeline is dictated by two primary variables: the seller’s ability to quickly produce thorough diligence and the duration of legal document negotiations.
Why the 24-Month Pre-Market Phase Matters
The critical misunderstanding for most owners is that while it typically takes less than a year to sell a company, the most influential factor in a company's valuation is the two to three years of performance before going to market. To maximize enterprise value, owners must use this period to mitigate value dingers long before the first buyer call.
Common Value Dingers
1. Stagnant revenue growth
2. Margin compression (declining gross margins despite rising revenue)
3. Management gaps or key personnel nearing retirement
4. Deferred CAPEX and aging equipment
5. Lack of integrated software or antiquated systems
5. Key customer concentration
If BAMA could wave a magic wand to help our seller clients, we’d meet with them a few years before selling to strategize on their unique valuation dingers and drivers, outlining a plan to optimize EBITDA multiples before going to market.
Anatomy of the Sale Process
Understanding the stages of a sale helps bridge the gap between timeline expectations and reality:
1. Preparation (6 Weeks): Information harvesting and the creation of customized marketing collateral/memorandums
2. Marketing & Engagement (6-10 Weeks): Qualifying prospective buyers, managing introductory calls, and soliciting bids.
3. LOI Negotiation (2-4 Weeks): Navigating the Letter of Intent to secure ideal terms and price.
4. Diligence & Documentation (2-4 Months): The most grueling phase. This requires a heavy lift from the seller to satisfy exhaustive requests while simultaneously negotiating purchase agreements, disclosure schedules, and ancillary legal documents.
The Premium Paradox
It is vital for sellers to recognize that a premium valuation often invites more intense scrutiny. When a seller accepts an offer that exceeds market averages, the buyer naturally seeks to protect that investment. A high-multiple offer usually results in a more comprehensive review by third-party advisors across multiple streams: financial, tax, environmental, legal, IT/IP, labor, and insurance. This deep dive of the business ensures the buyer gets exactly what they are paying a premium on. This process can be frustrating for a seller who feels overwhelmed by the volume of requests. Hang in there.
Selling a business is often the most significant financial event of an owner's career. Transaction success requires more than just a great company. By aligning expectations with the reality of the M&A process, owners can maintain the stamina needed to cross the finish line.