Everything I Know About Selling A Company: Frequently Asked Questions
I have made quite a few videos about the process of selling my company, all of which can be accessed through my How to Sell Your Company playlist on my TikTok profile.
But the questions just keep coming, so I put together the FAQ below.
Q. Why did you decide to explore selling the company?
A. So many reasons.
Private equity firms were contacting us several times a week, so we knew there was interest.
Deal multiples (of annual recurring revenue, or ARR) were at record highs at the time. This indicated that the market for companies like ours was hot, and we did not want to miss out on the opportunity to sell at the top of the market.
We were closing in on $5 million in annual recurring revenue, so we thought we were finally at the minimum viable size for a deal.
We were concerned about an imminent economic crash. Most of our customers were in the technology space and we felt like this sector had been riding high for so long that some kind of correction was inevitable. We were right. Just after we sold in 2022, the tech market fell into a slump, so our timing concerns proved to be valid.
Q. How did you find the right banker to sell your company? What criteria did you use to select them?
A. I found my banker just like I found almost everything else for my business; through a referral from someone my partner and I trusted. When we decided it was time to hire a banker, we reached out to our network and we received 5 or so referrals. Some of these were from our law firm, which we hired before we hired the banker. This was a good way to go, because law firms work directly with the bankers, so they know which ones are good and which ones are not. We interviewed five M&A firms. Two declined to pitch us, so then it came down to three.
As for criteria, we looked at firms that had successfully completed similar size deals in our sector recently. Timing was also important, as in 2021 firms were juggling a record number of deals after the slump of 2020. For example, one of the firms we were considering told us they couldn’t start the process until early 2022. We wanted to be done by then, so we rejected them because of our timing requirements.
Q. What did your “deal team” look like?
A. I led the day-to-day process with my business partner’s support and participation, which meant I handled all requests, paperwork and coordination and he joined in for key meetings. Our M&A banker was Leonis Partners, out of New York City. Our leadership team, which consisted of four employees, was kept informed of the process and participated in due diligence meetings as we got closer to closing. Some of our vendors also played critical roles in providing information to the buyer: our accounting firm, BNA, out of Rock Hill, SC; our technology and development firm, Dualboot Partners, out of Charlotte, NC; our law firm, Morris, Manning & Martin out of Atlanta, GA; and our fractional CFO, Todd Serulneck, out of Charlotte, NC.
Q. What did the process look like?
A. There were five phases:
Phase 1 (September 2021): After signing the contract with Leonis Partners in early September 2021, I immediately got to work, uploading dozens of documents to a data room they had set up for us. We also had a number of discovery meetings with Leonis and our fractional CFO to review our financials. Leonis then prepared a marketing deck to provide to potential buyers, which we worked with them to finalize. Leonis also pulled together a list of potential buyers, which consisted of more than 100 companies, half of which were private equity firms and half of which were possible strategic acquirers. We reviewed and approved this list and also added to it, based on which companies we had already spoken to in the past.
Phase 2 (October 2021): Leonis began outreach to the list of prospective buyers, providing the marketing deck to those who expressed interest. They also set up a few management presentations for me and my partner, in which we would meet with interested partners via Zoom. They set an “offer day” for the second week in November. During this time, we met weekly with Leonis to review their progress.
Phase 3 (November 2021): Receive and finalize offer. This only took a few days in early November and then we moved right into the Due Diligence process.
Phase 4 (November 2021-January 2022): Due diligence was the longest part of the process and consisted of providing documentation and having lots of meetings to answer questions about every aspect of the business.
Phase 5 (January 2022): It took about ten days to close the deal. This phase consisted of tying up a lot of loose ends, like getting all final required documents, finalizing the consulting agreements for founder exits, pulling all the closing paperwork and numbers together. Closing got delayed three times, which was stressful.
Q. How did the banker source potential buyers for your company?
A. They do this kind of work all the time, so they have dozens of potential private equity and strategic buyers in their own network. We added about ten companies to their starting list. The company that ended up acquiring us, Euromoney LLC, came from our network.
Q. How long did it take to sell the company?
A. A little over four months, which is very quick. We began the process Labor Day weekend of 2021 and closed on January 21, 2022.
Q. How did you negotiate the price?
A. We received an initial offer of $20 million, which was lower than I expected, but it was all cash, which is advantageous. I countered with $30 million and they came back with $25 million and we agreed to that price. The whole negotiation took only 24 hours.
Q. Did the company that was buying you want to interview any of your employees?
A. Yes. Near the end of the due diligence process they wanted to speak with our department heads, including our head of product and head of editorial. But some of our functional leaders were outsourced; our fractional CFO met with them throughout the process, as did our accountant and the principals from our technology vendor.
Q. What was the impact on your revenue while you were in the process of selling your business?
A. Not much impact, but that does not mean it was not challenging. My partner was laser-focused on sales and ARR while I ran the M&A process. Our pipeline and revenue was very strong at the time, but at the end of 2021, just about a month before the sale, we had three huge deals that were several weeks late to close, which became a matter of concern to the buyer. However in mid-December those deals finally closed, which I believe prevented the deal from falling apart or being retraded, which means the buyer lowers the price when the process is already underway.
Q. How did you manage your time during the M&A process so you could keep the company running?
A. When it became clear that we were going to run a process and that I would be leading it, I formally passed off many of my responsibilities to members of our leadership team. This ended up being a great move for our leaders too, because it meant that they were well positioned to keep the business running without me after the sale, as I did not continue in my role.
Q. When was the company taken over by the buyer and what was that process like?
A. The company was taken over by the buyer just days after the deal closed. They had done four other acquisitions, so they had a well-defined process for taking control and transitioning the employees. My partner and I were completely out of the business after three weeks. Since I was not part of the process, I can’t speak to exactly what it looked like, but I know they quickly had our employees meet and start working with their new leadership.
Q. Did you get offered a job by the new buyer?
No. I consulted with them for about 10 hours a week for three weeks and that was it.
Q. What kind of documents did you need to prepare in order to sell the company?
A. Due diligence is all about getting the right documents in the right place. The bankers and lawyers provide instructions as to what to provide and how to provide it, and I followed their instructions to the letter.
Here’s my document list:
Business formation documents, including shareholders agreement and cap table.
Other legal documents like copyrights and trademark registrations, NDAs, employment agreements, data privacy policy, etc.
HR documents and employee information such as org chart, roles and responsibilities, compensation information.
Financial documents including tax returns, annual financial statements, forecasts and sales projections.
Customer documentation and contracts.
All marketing collateral.
Technology documentation that provides an overview of your tech stack and your information security infrastructure and processes.
Product documentation and roadmap.
Q. What did the due diligence process look like?
A. 90% of your time spent on due diligence will consist of finding and uploading documents and other information. You will be asked many times to provide the same documents and you will also be asked to provide the same information over and over again in different formats. So it is important to organize everything as you go along so you can easily find the same documents and information quickly and repeatedly.
The other 10% of your time will be spent in meetings and conversations with your bankers, your lawyers and the buyers and their lawyers. After they review the documents everyone hops on a call so they can ask you questions about what is in (or is not in) the documents.