14 Nov Timelines & Expectations for an M&A Process
We work with buyers and sellers on M&A processes everyday. there is some variability on the process timeline but we typically see the process take around 6-12 months.
THE PERIOD BEFORE THE PROCESS
In the period before an M&A process, make sure your company is well-run and healthy. Is your company operating efficiently? Is your company realizing top-quartile profit? Is your company profitable? Profitability is the greatest lever your firm has to get the best valuation, and find the best suitor. If you have a lot of skeletons in your closet, consider spending more time on M&A Readiness and getting your house in order before an M&A process. Revenue Rocket has programs for buyers and sellers when it comes to readiness.
We often get asked; How long will it take to sell my business/acquire a business and the answer is always tough to navigate. Truth is, many variables play into the timeline and the ability for a deal to make its way through the process in a predictable timeline. In this blog post, we are going to unpack these questions and try to address as many of the myths as possible.
Let’s start with the blanket response. We like to set expectations by saying if an organization is ready to sell (we will elaborate on that a little later) and the buyer is capable and following a proven process (ideally having experience in business combinations) then we typically see a process lasting somewhere between 180 days and 365 days. (6-12 months)
This includes the seller preparing its disclosures and financials for sharing, usually in a data room. It provides a month or so for the buyer to evaluate the information and establish a valuation that will be presented back to the seller in the form of a letter of intent (LOI).
If the selling entity does not have detailed audited financial records, it’s common for the buyer to request it be completed before closing as the implications surrounding tax liabilities and misunderstood customer performance could be devastating to a buyer. This process can take 30 to 60 days and is recommended that sellers undergo this effort before soliciting a buyer.
Then the parties will collectively agree on a price, usually after several back and forth negotiations and trading of justifications for value, risk and opportunity. This process can take the longest (30 to 60 days) as it encompasses all of the reps and warranties and details that contractually bind the parties to their respective responsibilities before, during, and after close.
The structure for the definitive agreements begins. Most of the time these transactions leverage a stock purchase agreement (SPA), which encompasses all of the deal terms and conditions along with the structure for settlement and timeline. It will include information on the transfer of leadership (selling-in or selling-out) and any other post-combination implications; such as earnouts, transition or retention programs and transfer of ownership and liabilities associated with selling entities.
GETTING TO CLOSE
Now that the parties and their respective agents (advisors, lawyers, accountants…) have gone back and forth to the point of every term and condition being reviewed, understoo, and agreed to, the final documents will be drafted and prepared for review by the seller and buyer. This is typically at the stage where a close date is established. The implication of a close date has many consequences as well due to the nature of things like cash on hand, payroll liability, tax preparation and stub year filings, as well as communication plans and sensitivity, funds for closing and even sensitive account renewals on behalf of the seller. We usually see closing dates within 30 of the parties agreeing on the final agreements.
It’s now closing time and all the parties are ready to execute the SPA, transfer funds and/or stock, the communication plan is set, the press releases are prepared and waiting, the advisors and lawyers are on standby for any issues and it’s time to sign. Following the signing and transfers above the deal is complete and the parties are free to communicate to the employees, market and press. We may still see some post-close activity taking place such as new bank accounts, swapping of payroll processors, and transitioning of lingering commitments but this deal is done.
In summary, we caution people with too aggressive of a timeline as it leaves room for error and rushed discovery which can result in over paying or the deal falling apart. That said we do see distressed assets or asset sales close in as little as 90 days, but those deals are typically priced to sell and the liabilities know or in the case of an asset sale the buyer is acquiring the customers, tech and perhaps hiring some of the employees while leaving the liabilities with the seller.
Deals can take a year if the parties are not ready and the deal has to be re-traded with the fluctuations of business or changes to valuation. We also suggest sellers and buyers leverage an advisor with proven processes to ensure a deal is properly managed and ultimately predictable from a timeline perspective.
We hope this helps level-set the myths and expectations surrounding successful M&A timelines and the importance of being prepared. For more information on how Revenue Rocket can help you prepare to buy or sell your business reach out to firstname.lastname@example.org