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Selling a Business

It is likely that every professional involved in the sale of a business has recently experienced the frustration of time delays in closing the transaction. Is this elongated sale cycle the new norm?

In most years prior to 2008, sales of non-distressed business were usually completed in 6 to 12 months, on average. Today, the norm is more like 9 to 18 months. What are the root causes for these delays?

The primary impediments follow:

  1. Buyers are more cautious. Even prior to buyers submitting an Indication of Interest or Letter of Interest (LOI), they want more information on the seller. Sometimes, this delay allows them another month or quarter of financial data. At the same time, their delay may eliminate them from consideration for the highly-sought sellers.
  2. Private Equity Groups (PEGs) often take a longer look at the synergies of a seller fitting their platform, which may delay initiating the LOI. In addition, with more limited access to debt leverage, this group of buyers may need to ensure their equity flow and returns are properly analyzed.
  3. In the era of advanced technology, buyers can readily access a myriad of seller and market information. Thus, they request numerous types of analyses from the seller. The due diligence process is often longer than in the past experiences.
  4. While buyers have available cash, or access thereto, many do not play in the "blind auction" process.
  5. There are fewer seller cases where numerous buyers vie for the deal. Many sellers still have financial, customer, and/or management issues, inconsistencies and risks. Obviously, the very best managed firms that are market or industry leaders sell quickly and for premiums. However, there is a real dearth of these companies.
  6. Having survived the last four years making fewer deals, buyers often opt to pass before getting into a bidding war. Safety outweighs sorry.
  7. For the senior lenders who participate in purchases, the diligence is usually conducted at a snail's pace. This occurs because the lenders are overly cautions, as well as the need to create documentation to comply with the burdensome regulations.
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