Timing is a large consideration in mergers and acquisitions. Because no two deals are the same, no two marketing approaches are likely to mirror one another. And while some businesses can and will be sold quickly, others may take more time to find the right buyer willing to pay a bit more premium. Timing considerations will revolve around internal needs of the business, the macro market, seasonality of the typical deal life cycle and the individual nuances of the deal itself. Knowing when to hire your investment banker to help sell your business is critical in nailing the question that answers best timing.
When clients ask, “how long does it take to sell my business?” I typically like to provide the long answer which generally works backward from closing. 90 days for due diligence is fairly typical. Seller’s representatives will push for shorter while the buyer will push for longer, but 90 days is typical. Next in the backward view are Letter of Intent, Indications of Interest, management meetings, marketing, list prep and offering memo build-up. In all, it is safe to assume the entire process can take between 8 and 12 months, with the latter being the most typical.
Blind Spots and Dead Zones
It is important to understand the timing so you can plan micro decisions on the macro situation that answers the question: “when is the best time of year to sell a business?” In planning for the event it is helpful to know the times of year that are likely to be considered the proverbial dead zones.
Buyers–whether strategic or financial–operate under the same set of general parameters as the rest of the public. That is, they typically take vacation time off during the Holidays and during late summer. For the sake of deals, it is helpful to understand that the world tends to shut down between Thanksgiving and the New Year and from about the end of June through August. It doesn’t mean that you can’t do deep-dive due diligence or hefty marketing during those patches, but it helpful to at least consider what the attention shutdown means for your deal.
The Critical Path
With the dead zones in mind, it is helpful to understand which area of the process is most critical for capturing and maintaining the attention of the various suitors to your transaction. If you take the process as simply as 1) Preparation, 2) Deal Marketing, 3) Buyer Selection and 4) Due Diligence/Close then the Deal Marketing step is the tail that wags the dog and the one on which to focus.
Ideally it is best to plan on starting the deal marketing phase by at least March or April, but no later than May. If a seller misses that window, then you can either extend the time for marketing a transaction out more than the typical 3 to 4 months, or you can hit pause again until the second week in September when the kids are back to school and buyers’ heads are back in the deal game. The worst possible time to start the marketing phase mid November or thereafter. In project management speak, we are focusing on the critical path and ensuring the rest of the process pivots from that phase.
When buyers get into a deal and committed to a process, the other components typically can fall within the dead zones without an issue. It’s getting all the right buyers to the table so as to create a true market for the business. Due diligence and deal preparation, in particular, can be pushed into the dead zones. Other critical items are best completed outside.
I have seen deal closings happen at nearly any time of the year. Deal timing is less important when there is a good deal with a serious and qualified buyer. But the cost of selling a business is based more on just the qualitative components to a deal. Soft considerations like timing are critical in maximizing seller value. The strategy and tactical implementation is in targeting the buyers at a time when you can capture their attention to help build a true market for an otherwise illiquid asset. Everything else flows from there.