The sale of a privately held business involves a number of complexities above and beyond the baseline issues of any business sale transaction. There are often a number of family members active in the business, the presence of estate planning issues, and the owner’s emotional entanglement with the business, its customers, and employees. Thus while a clear objective in a sale is maximizing the financial value to the seller, this is often constrained or bounded by non-financial objectives and requirements of the owner. This article assumes that the owner has defined his objectives and developed a transition plan. It focuses on the logistics of marketing and selling a company.
Sale Process Models
In the world of private transactions, intermediaries have developed four general sales models that they employ to make a sale. (It should be noted that private transactions do not include public stock offerings or securitized offerings made through licensed securities dealers.) In general these can be categorized in the following manner:
The Dispersion Model – Utilized by many business brokers, this technique follows the real estate model. Lists of companies for sale with a brief one paragraph summary are dispersed through fax, bulk mail, and, increasingly, e-mail, to a non-targeted database of contacts. The lists tend to be regional and broad spectrum. The broker acts as a finder, collecting a fee on a completed transaction from either the buyer or seller.
The Catalog Model – Used in several variants by different firms, this approach uses a very broad prospecting approach that generates a large number of companies for sale. On the basis of a purchased valuation report the companies are listed in a “Companies for Sale Catalog”. These are categorized by industry and geography and are then dispersed widely to a network of potential buyers, intermediaries, and other companies. Potential buyers expressing an interest are introduced to the company with an information book that follows a standard format, and a local affiliate works to facilitate the transaction. In addition to the upfront listing costs, a success fee is paid by the seller.
The Database or Internet Model – A more recent outgrowth of the Dispersion Model, this model utilizes internet and database technology in lieu of more traditional methods of collecting and disseminating information on businesses for sales. Businesses are listed on internet accessible databases that can be searched and indexed by geography, industry, size, etc. This model is often used in conjunction with other techniques to reach potential buyers for a business that could have wide appeal. As with many internet businesses, fees vary widely, with some sites seeking to earn a full finder’s fee and others collecting a per lead or a subscription fee.
Customized Sale Model – Most Investment Banking firms employ a customized or tailored sale model. In this model, the advisor conducts significant early stage planning to establish a sale strategy for the company that takes into account the specific objectives of the owner, the company, and the market conditions at the time of sale. This model typically will include substantial work in preparing an offering memorandum describing the business, its historic performance, and future prospects. There are two basic types of Customized Sale Models.