But thousands of mid-market CEOs are not ready to execute an exit strategy by selling their company, even though they’ve long determined that’s what they want to do, said Peter Lehrman, CEO of Axial, a New York City-based online M&A platform that connects private middle-market companies to capital as they grow or exit their business.
“It’s very important to have a meaningful amount of preparation and lead time,” said Lehrman. “Some mid-market companies take the process seriously, but others chronically procrastinate on an exit strategy. And if you’re not prepared, it’s much, much easier to make mistakes,” he said.
Lehrman outlined a four-step process he recommends for mid-market CEOs and owners planning to exit their companies through a sale.
1. Be prepared at a high level. This means understanding your options and having a list of potential buyers for which you’ve done due diligence and feel they would be the best fit. Then find a reason to connect with them and start a dialogue of introduction. Also, make a list of their appropriate qualities and strengths so that when the time comes, you can look for other companies that look like them.
“There are thousands of private-equity firms and corporations making acquisitions, so every CEO should have a sub-set of relationships with the most likely and active of buyers in their market. If you wait to have relationships until you want to sell the company, you are doing yourself and the company a disservice.”
2. Get your financial house in order. That includes making sure the company has audited financial statements. “Getting an audit isn’t super-cheap, but it’s much less expensive than having a transaction go sideways” over the lack of it, Lehrman said.
3. Retain an advisor to help. “You need to have the right advisor around you to help you go through the process,” Lehrman said. “This is an area where both startups and mid-market companies consistently underinvest, then they’re very disappointed when they don’t get the results they hoped for.”
4. Know what you want and flesh out all possible scenarios to understand where they could end up. Lehrman said that if a CEO “doesn’t have a clear objective in mind when thinking about selling the company, or about raising capital, then it’s very hard to drive toward a successful goal. Do you want to sell the company or raise capital and keep it going? Retire or continue to be a CEO, partner or advisor after the sale? You must have answers to those questions.”
With the aging of the baby boomer generation, the next decade or so will see “the biggest transfer of American private companies probably in history,” Lehrman said. Following his advice can lead to successful outcomes for you and your business.