A Few Important Notes

The Audience for this Book

I wrote this book not only for sellers, but for anyone involved in the M&A process, such as buyers, attorneys, accountants, and business appraisers. For the sake of clarity, I address sellers directly throughout the book, but I wrote this book with all of you in mind. 

A Note on Asking Price

Mid-sized businesses, or those generating more than $2 million to $3 million per year in EBITDA, generally go to market without an asking price. But, to help readability, throughout this book I refer to asking prices without mentioning each time that businesses in the middle market almost always go to market without an asking price. When I mention the asking price in the context of a mid-sized business, you can consider this synonymous with the value of the business. 

A Note on Exceptions

I’ve based the advice and guidelines in this book on what you can expect to encounter 95% of the time or at the middle of the bell curve. When selling or valuing your business, you shouldn’t count on exceptions – you should target the middle of the bell curve and base your strategy on what works the majority of the time. Doing so will increase your odds of success and significantly lower your risk of not meeting your expectations. Encountering an exception that works to your advantage is always a nice bonus, but you shouldn’t count on it, or you will likely be disappointed. 

There are exceptions to every rule. For example, a company earning $18 billion a year is unlikely to acquire a company that generates only $3 million per year. But I’ve interviewed the head of M&A for an $18 billion company on my podcast, M&A Talk, who did just that. You can listen to the episode titled The Acquisition Process with Brian McCabe at morganandwestfield.com/resources.

Most seller notes are for three to seven years, but I concluded a transaction in which the seller note was one year and another transaction in which the note was 10 years. There are always exceptions to every rule, but to make this book readable and keep my advice sensible, I have avoided listing every imaginable exception throughout these pages. 

Instead, the goal of this book is meant to illustrate 95% of the bell curve you’re most likely to encounter. The M&A world is highly idiosyncratic, so there are deviations from every rule in the industry. I have noted when an exception is more likely to occur or when an exception can have disastrous consequences. Otherwise, the aim of this book is what you can expect to happen in the overwhelming majority of the situations you’ll encounter when selling and valuing your company.

When selling your business, you shouldn’t count on exceptions – you should target the middle of the bell curve and base your strategy on what works the majority of the time. 

A Note on Size

I refer to small and mid-sized businesses throughout this book. I also refer to the Main Street and the middle markets. What’s the difference?

There are no clear-cut protocols, but I will offer a few simple guidelines. 

Perhaps the simplest guideline relates to what type of buyer is most likely to purchase your business. If the probability of selling your company to an individual is high, you should consider it a small business. However, if the odds are higher for selling your company to a corporate buyer, such as a competitor or private equity group, regard it as a mid-sized or middle-market business.

How do you know who is most likely to buy your business? There are two general benchmarks:

1. Industry: So-called Main Street businesses that are generally not scalable and are likely to remain small are most apt to be sold to individuals. They include small retailers, small service-based businesses, and other companies in industries primarily dominated by small businesses and mom-and-pop shops.
2. Size: The larger your business’s revenue and profitability, the more likely you’ll be able to sell it to a corporate buyer. Generally, once your profitability exceeds $1 million per year, your business begins to appeal to more corporate than individual buyers.

Hence the reason for this book.

Let’s get started.