How long it really takes to sell a business

Article

How long it really takes to sell a business

Dave Rebbettes
December 2018

For a business with a £1m to £50m turnover, the average time to sell can be up to 18 months. If this is longer than you thought, there are good reasons for that.  Learn what issues can slow down or speed up a company sale, based on our analysis of 50 real company sales*.

Months or years – what's the truth? 

The dividing line on ‘how long it takes to sell’ correlates with the size of company in question. Brokers and business-for-sale listing websites say 6-12 months for those they do get away. However, their customer profile skews towards microbusinesses – typically in food service, personal services and independent retail – which are often simply the sale of equipment stock and customer lists. A full ‘share sale’ is more complex.  

Accountants working with multi-million turnover SMEs suggest it takes around 12 months to sell. But we know that many auditor-based advisors are fond of management buyouts (MBO), which are usually quicker to complete as both parties already know each other.

Our study of 50 acquisitions ranges from deals handling negotiations for a client with a readymade acquirer in tow (43 days to complete) to advising businesses on how to restructure or test new products before going to market (six years to complete). 

So let’s look at how this timeframe breaks down during the different phases of getting ready to sell, meeting buyers and negotiating the detail.

STEP 1: PREPARING FOR SALE

Average time: 4 months

An increasing number of business owners spend two or three years prepping their company for sale, before appointing an M&A advisor to market the opportunity and close the deal. 

However, at BCMS we spend around 40% of the lifetime of any business sale transaction preparing client businesses for the market. This phase includes researching potential buyers, producing tailored documents to present the opportunity, and conducting a business health-check including financial modelling. 

While some clients are understandably keen to get going with speaking to buyers, getting ‘under the bonnet’ of a business for sale is essential to avoid surprises or pitfalls further down the line. 

Example: slow burn – the owner of an equipment supplier wanted to sell to an MBO, but the private equity investor wanted to see cashflow improve before it would agree to release the MBO funding. We advised our client to hire an interim finance director (FD). Within three months, customer contracts had been renewed, staff overtime brought under control, and leases renegotiated. After pausing the sale process for 18 months, new accounts confirmed the business viability to the investor, while also giving us the leverage to negotiate a significant uplift in value for our client. 

Example: fast track – conversely, two shareholders of a technology consultancy had been talking to a key competitor for months before hiring us to negotiate the details. We suggested bringing in counter-bidders but the pair were fixed on selling to their competitor. A protracted due diligence period still caused some delays, due to a need to rework the accounts over debt calculations and assumptions. Start to finish took 15 months.

STEP 2: MARKETING TO POTENTIAL BUYERS

Average time: 3 months

Getting through to potential acquirers and following up with decision-makers demands tenacity but should also work to a controlled timeframe to build momentum. 

Pitching the opportunity requires language skills, an appreciation of different business cultures, and flexibility to work across time-zones. There’s much more to this than an automated email blast.

The work here includes securing signed non-disclosure agreements to protect the clients’ commercial interests, sending out more detailed information, and initial filtering of who’s in and who’s out for the next stage. 

STEP 3: INITIAL OFFERS AND COUNTER-OFFERS

Average time: 2 months

Having approached dozens of potential buyers, a handful are likely to want to meet the owner to find out more, while also sharing their own plans.

Here, vendor shareholders are coached by their advisor what to say and how to behave at these meetings to maintain interest, while also assessing the potential acquirer’s intentions.

This stage also involves comparing, rejecting or improving initial offers from acquirers. Clients then need to take time with their advisor to understand the details of the offer, before moving to negotiation.

Example - momentum: a defence manufacturer received a strong offer from a prestigious multinational group, and the owner was keen to agree price and terms, when the acquirer suddenly withdrew.

They had been offered a much larger opportunity elsewhere and did not want too many acquisitions on the go simultaneously. BCMS had also lined up other interested parties, so the client business had five other expressions of interest to fall back on. Competitive bidding quickly resumed, and the client ended up with the same price but more generous terms.

STEP 4: NEGOTIATING THE LAST HURDLE

Average time: 3 months

Although the final phase only accounts for 15% of a deal duration, this is easily the most intense phase, requiring everyone’s close attention and time commitment. 

This stage begins when the owner accepts an offer and moves into exclusive talks. Lawyers are introduced into the mix, virtual data rooms are populated with all manner of documents, and acquirers often start adjusting the headline price to take account of emerging risks.

This is all part of the buyer’s comprehensive appraisal of the business to establish its assets and liabilities and evaluate its commercial potential – known as due diligence.

The preparation work described earlier can reduce the time this takes, while also maintaining confidence and momentum from all sides.

The key take-away

For any business owner, the right deal is far more important than the fastest deal. Choice is vital here, and that takes time.

As these examples show, each business sale is unique. All kinds of issues can and do come up – personalities, processes, price – and potentially stall or kill any deal. 

But business owners can control some of this by focusing on a ‘right first time’ approach to selling their company. That means thorough preparation, proactive marketing, and skilled negotiation, rather than a focus on which advisor charges the cheapest fees or offers the fastest process. 

A sale process is useful tool, but a good advisor will remain focused on solving these issues to deliver the clients' overall goal, whether full exit or securing growth investment. 

* Based on 50 BCMS transactions completed in six countries between January 2016 and June 2018.