Pre-market Strategy: Gauging Buyer Interest

In this episode, we dive into our pre-market process for business owners considering selling their companies. Learn how this strategy can help maximize value, set realistic expectations, and align your business with buyer interests. We’ll also explore the importance of tracking key metrics and keeping a pulse on the market to ensure your business is ready when the right opportunity comes. Whether you're planning to sell soon or just starting to consider it, this episode will help guide you through the early steps of the journey.

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TRANSCRIPT:

Welcome to Integrated Insights with ICCG. For more than 30 years, our team has partnered with small business owners to prepare for and navigate the business transaction process.

Pull up a chair as we share stories and insights from our experience on all sides of the M &A table. Well, welcome back to Integrated Insights. I'm your host, Mason McFarland,

and today we have Michael Hefner and Andrew McQuilken with us. How are y 'all doing? Doing well. Doing great. Hey, doing great. All right. Today we are going to be talking about our pre -market process.

So let's start off. Who is the pre -market process for? I mean, simply put, business owners, So ultimately,

anyone that wants to sell their business at some point or another should have a pre -market, ultimately. They're going to have time before they actually go to market with their business.

And getting ahead of that is the intent of the pre -market process. So it's really looking at financials ahead of time, seeing how they need to restructure and maybe looking at their business strategy,

and where they're focusing, and what they need to do to maximize that value for the time to help them meet their goals. Most business owners, they might have an exit timeline in their head,

they don't have a down on paper, they haven't talked about it, but if they talk about it, there are some things that they may need to change, some things that they need to reposition,

Or, I just have their eye on because a buyer is going to have their eye on it, and so they need to start preparing. This is kind of the preparation side, long -term preparation side.

And so, if they have a goal, let's say somebody wants to sell for $10 million, well, if we look at their business, it might be worth, you know,

$6 million, right? Well, that gap right there, and part of that is asking buyers, "Hey, what would you want to value this at?" And that's part of it.

And so we kind of look at that, "Okay, what do you need to do to get there?" And so that pre -market process of before it goes on the market, What do you do?

And so that's what it's for because every business owner needs that exit strategy. And so what are you going to do before it goes on the market? And I think there's also a lot to add there just around like you don't know what you don't know.

Ultimately, we said this on our last podcast is business owners are really good at what they do. They're really good at owning their business. But the chance that they also have in -depth mergers and acquisitions experience and know how to calculate EBITDA and recast and what their multiple should be,

and let alone know what's actually out there as far as interest and what buyers are willing to pay. If there's a willing buyer in the market at that time, until you get into the pre -market strategy,

sit down with us, hear where you're actually starting, what your starting point is, what you might be able to expect and and what some of that interest is, you don't know what you don't know. Somebody might come to the table and want to submit an offer with exactly what meets your goals.

But until you bring it forward, as long as it's not focused on time for a specific reason, like you can't do it until this point, you might be ready much earlier than you would expect.

Yeah, that's great. So how is the pre -market process different from our normal process? It's a little bit like a mini process.

A lot of the stuff we do is very similar to preparing for market, to preparing for taking somebody to market. A lot of the materials that we And, you know,

we even have a SIM light that we do, right? So it's a mini version of the SIM light. And we're still going to do the same kind of financial analysis looking, going through that, the recast,

all of that. And, but it's really trying to get it out there. Something of a taste test to the market, right? See what kind of interest there is without saying like,

hey, we're collecting offers on this. And, But really, two, one, gather that information, but two, help to give a really good idea to that client what they can expect when they do want to go to market.

Yeah, we're not really, we're not, we're not, we're not marketing it to the masses, right? We may be reaching out to five to 10 people that,

that might be buyers, right? Or they at least know the industry. And so when we ask,

"Hey, what about this industry?" And we may not give them the exact business. We may not disclose a whole ton of information, but we'll give a basic profile.

And so now If somebody intimates that they're close to what the expectation is, then we'll kind of move forward with this whole what we call SIM light and very,

very basic information. It doesn't delve into the details of what a full blown out SIM would be,

which I believe we've talked about what a SIM is, a CIM, Confidential Information Memorandum. And so we've talked about that in a previous episode, but we will,

it's the most basic overview while also disclosing who it is. And so we will do that and then if somebody is saying,

hey, "Let's go ahead and we're gonna send this offer." Then great, then let's move forward and if it meets the expectation, perfect. And so really, I think that this is,

I think that it's not necessarily for every client of ours. It is for some, but it really is for,

I think it's perfect for a business where it's not our everyday industry, right? Where if you're a landscaping or pest control or machining business owner that is,

it's a very straightforward, hey, this is This is our profile, this is our revenues, our net, whatever it is, and we look through it and we say,

"Okay, yeah, we know the industry and we know where the multiples are, and we know what things to look at, and we can give you what we can achieve." And if you say, "Yeah, and that meets your expectation,

then let's go to the market." But, and that's a full -blown process, but when we're talking about maybe an industry that we're not constantly active in,

then we need to get a little bit more of a pulse on the industry. And to be honest, there are many industries that most intermediaries have no idea about.

And so that's why we do this Soft marketing right soft marketing where we're kind of Testing it and saying hey, what what about this industry? Okay, what maybe let's go a little bit more specific What about this what about this what about this and and then and then they can tell us yeah it's probably gonna be around this range and And then we can kind of take that information and say okay.

Does that line up perfect? Let's let's let's start making this a little bit more of a more gradual process moving them down the process and so and so that's that's what that's what a sim or sorry a this pre -market process is really for.

I would just add that you know we've mentioned a lot situations where you know somebody comes forward before you'd even expect and maybe you got a market sooner or take an offer than you need to expect.

But ultimately, the thought behind why we wanted to do this was just to get down the road and be able to build a relationship over time. Because ultimately, there's going to be a lot more value in your company if we've been talking for three to five years in advance of a sale versus you coming to us knowing that you're ready,

we just go to market and try to sell it. we don't know your business at the same depth as we would having quarterly meetings for the last two, three years. We would know it better and we'd be able to help you make changes to increase your value.

Those are the main reasons we do it, but like we've already mentioned, we also know that there's going to be a lot of times that people start pre -market and they don't even know where they started.

that can surprise them. And when somebody comes to the table, there's actually a dollar sign sitting in front of you, you have a real decision to make, it might be the right decision. So again,

just making sure that we are able to sit down with people regularly to have those conversations about how their business is doing and how far they are away from those goals that they've set.

- Yeah, I think that's a good point because it's not just about testing the market, right? It is about keeping a pulse. If you're a business owner and we walk through the financials,

we walk through this and, okay, hey, if this is what it looks like, then we can tell you what we think what we could achieve.

And so, okay, you're not ready let's walk through, let's keep a pulse on it, right? So every three months or every six months or whatever that timeframe is,

let's just keep a pulse on it. And it helps us prepare the timeline for you, right? As a business owner, we're gonna help, we're gonna know exactly what,

when to jump in, right? And when to get a meeting on your calendar. And so that's where we will definitely will want to meet with you.

I mean, that's why we like to get in on the conversation as early as possible so that we can help the long -term exit strategy, right? And so it's not just,

like I said, it's not just taking it to the market or testing the market, it's what do you need to do to get there? And how can we keep tabs,

right? And so because it helps us by keeping tabs, and if it helps us, it helps you in turn. And so that's kind of where that's what we like to do,

and we like to also do as frequent as possible. Six months is probably too long. I know Michael and I both like to do well Michael probably wants to do every every month I like every quarter But but he's probably correct in that every month would help because it it helps us understand the The the trends right and and and we can if we have an eye on the trends then we have a better idea Where you're going to

achieve the goal right in selling not not not operating but selling yeah and continuing that conversation on testing the market Ultimately,

it is going to result Sometimes in getting someone to come to the table earlier than expected But the goal the reason we test the market is so that we're not making assumptions.

So that we're not sitting there saying, hey, this is probably what you can expect, but we can actually sit down with those buyers and say, hey, this is what the buyer base is saying now. This is what people that could be the buyer of your company are saying now about your company based on your numbers and what they know about where you are and how you're trending,

so. And they'll also give us some more information of, hey, what's important to the buyer, right? And so, hey, how do they, we may ask,

hey, how do you look at the value here? Is it a true multiple of EBITDA and what goes into that multiple, is it, you know, what's important to you for this business,

okay? I need to see this kind of data. And so, and if that's the data that they need to see, we may say, okay, you need to keep an eye on this data and you need to send us this data,

right? And so that's also important. It's not just about value. It is, I mean, it all goes into it, right? But at the end of the day,

also, it tells us what we need to track. Yeah, that's great insight. So what insight. What does our relationship look like during this process,

this test -the -market phase with the business owner? Is it different than our relationship on our normal process or what does it look like? I would just say that it looks very similar.

It's just more continuous. We're still going to have to get quarterly financial updates and stuff if we're going through a deal, because back on our process podcast,

we talked about our deals, six, nine months type of things. We're still having to get those updated financials, but the difference here is we're not actively in a deal yet. Instead of making sure that we keep both sides of the table informed on where the company is trending,

it's all about the relation to those goals that have been set to when they're ready to take it to market and when they're ready to sell. And so it's a continued conversation about,

"Hey, how are we doing? What is the market saying now that they weren't saying before?" And that kind of thing. So it's just different topics and different focuses that can look very similar on the two different But they're they're very different because of the goal All right guys,

well, I think that's all the time we have for today. I appreciate it and until next time And that wraps up another episode of integrated insights with iccg be sure to subscribe and stay tuned for more stories from our team We love hearing from our listeners If you have any questions or topics you'd like us to cover,

please send us an email in the show notes. For more information about ICCG, please check us out on our website or follow us on LinkedIn and YouTube. Until next time,

there's always a seat at our table.