M&A Insight #2 For Background Screeners
Nugget #2: Service Providers Who Help CRA Owners To Sell or Buy a Background Screening Business
Thank you for reading what is part two of our new series, M&A Insights for Background screeners.
In this post I will share with you the various ways in which a business can be bought or sold. More specifically, I will discuss the different service providers who help CRA owners to sell or buy a business.
NUMBERS TO KNOW
120. Average number of days until deal is closed
5. Typical number of serious and qualified buyers per deal
85. Percent of time we sell our client’s business to a buyer they did not know
TODAY’S M&A NUGGET:
My second nugget is about the utilization of third parties in M&A activities.
What types of third parties am I talking about?
Business Broker: One who works with many different, smaller scale transactions at the same time, across different industries, typically in a local geography. More transactional in nature and typically with stand-alone businesses. The valuation method is usually limited to current sales and profits. They will have little to no knowledge of background screening and are not considered experts in any one industry.
Lawyer: Lawyers are an important part of the M&A advisory team. They will write or review the contracts and play an advisory role to ensure the transaction is closed in an orderly and accurate manner. While lawyers are a key third party for M&A, these experts will not have the financial, marketing or scrutinizing eye for CRA efficiencies needed to be your sole advisor on a sale or acquisition.
M&A Intermediary: “Inter”, meaning between and among. “Mediary” is defined as someone who passes information or instructions between one party and another. A true partner from the first discussion until post-close. Experience with mid to large-scale, complex and strategic acquisitions and divestitures. One who works with businesses with wide business exposure, large investments and long-term strategic plans. Valuation method is intricate and assesses critical details such as: intellectual asset valuation, future potential growth, specific industry technology assessment and more. The goal is to calculate an accurate and fair valuation so the intermediary can bring you offers that are truly meaningful. Intermediaries spend a lot of time on this step. They know the industry inside and out, they know the companies who are legitimate players in the field and the companies to avoid.
What About “Going It Alone”?
Here is what is most likely true: you have given your all to your CRA. No one knows your business better than you. You want to maximize the sale price of your business, not get involved with outsiders who won’t understand your business and will just take a piece of the sale price. You say, hey, I’m smart, I’ve figured out complex issues before, I can figure out how to sell my business on my own.
So you decide to speak with some companies who say that they are interested in acquiring you. You send the prospective buyer proprietary information they say is needed to properly value your company. You get pressured to make a quick decision. You get what you think is a great offer for your business. You feel great, right? Or are you left wondering whether that offer is the best possible offer? And, have you been able to manage the day to day business operations at the same time as managing the deal? Do you care about what happens to your business after you sell? What about your staff – do you want them to be protected going forward? Certainly you know how to handle and run your business but you are no expert in M&A. Do you really have the bandwidth to work two full-time jobs at the same time?
A Cautionary Story
I remember speaking to a company about a decade ago and this gentleman wanted to sell his business. I explained our M&A services but in the end the gentleman did not want to pay our fees so he decided to try selling his business on his own. I wished him the best of luck but also told him this may not be the wisest decision. This gentleman studied M&A for six-months straight, day in and day out. He finally gained the confidence to go out to market and after another six-months he was able to sell his company. Unfortunately he spent so much time on M&A that over the year, his own company started to falter. His sales ended up being off 25% from the time he started his M&A pursuit and ended up getting 25% less for his business.
Can an owner sell his or her own business? Yes. Could an intermediary have helped to save a year of the owner’s life and most likely prevent the 25% dip in sales? I think so. Did that 25% loss cost more than they would have had to pay for an M&A fee? You bet.
Why Use a Third Party Advisor?
There are a lot of people in this world who feel that being a Jack of all Trades is better than being a Master of One. While this may be true in some cases, it’s not when it comes to selling your business. There is no need to play the hero. Let an expert help guide you to a successful sale. At the very least, speak with an expert and let them tell you why they feel you need their help. The value of using an experienced background screening intermediary will be clear from the beginning. Do you treat yourself when you have an eye problem or do you go to the ophthalmologist?
You most likely are not an M&A expert. You are an expert in running and growing your business. Continue to be that expert. Never take your eyes off your business. Continue to run and grow it the best you can. Let one of the service providers who help CRA owners (and why not choose the best?) carry the load of helping you sell your company at the best possible value.
Call me to stay in the know about third party advisors.
About the author:
Evan Zatt has been with Berg Consulting Group since 2007 and has led the Mergers & Acquisitions (M&A) and Business Valuations team since 2012. Evan has managed nearly three-dozen successful M&A transactions generating over $250,000,000 in transaction value. He has the expertise to help companies looking to acquire or divest regardless of size. While in his spare time Evan can be found hiking, golfing and at the physical therapist’s office, he can always be reached via his cellphone: (303) 875-1718.
