Welcome to another exciting episode of the Data Gurus podcast! Today’s episode is a little different. Sima will be focusing on people, or founders, who are considering selling their company. In today’s episode, Sima hosts John Sipala, one of her colleagues at Oberon Securities. John is a Managing Director at Oberon Securities and has more than 25 years of experience in investment banking.
The market right now
Private equity firms want to be in the market and are looking for companies, so there is a lot of dry powder in the market right now. Many tech companies are performing very well coming out of Covid.
Selling is not simple
When the market is very active, people start thinking about selling. When talking to the founders of companies, John initially asks them why they want to sell and why they want to sell now. That tells him whether they have thought things through, whether they truly want to sell, and if they need to raise capital. Often, the founders don’t understand that selling will require them to go through several in-between steps.
Common themes for people wanting to sell
Some people want to sell their company when they feel they have brought it as far as possible. Other owners need to bring in more capital, and some are simply tired and feel ready to move onto something else.
Business partners should engage in a dialogue before they decide to sell, which will help them understand what others want to do and ensure they are all in lockstep when they eventually do the transaction.
A personal involvement
When John does a deal, he gets personally invested and it’s not just a transaction for him. He makes sure that he is aligned with the seller’s expectations and there is a high level of success associated with the transaction.
The role and value of an investment banker
Selling a company involves complex transactions that are often very different from any the founders have experienced before. The transactions are multifaceted, and there are many things, even beyond evaluations, that could affect them. The role of the investment banker is to ensure that all the transactions get done in the right way, from beginning to end.
Before selling, consider the culture of the buyer, what their intentions are for the business, and what your role will be after the sale.
The market is important, but it is not the only driving factor. The timing of the market should not be your primary reason for selling. You have to understand the external part of the market before bringing a deal forward.
Having a strategy for what you want to do and how you intend to go about doing it will add a lot of value to your company when it goes to market.
Avoid making changes to your business when it goes to market. Buyers want things to be going as they are supposed to go.
Some high-level things founders should think about when selling:
1. The transition period will be at least six months or even a year.
2. Most buyers like the founders to stay on for longer than the transaction period. It could take as long as two years, so make sure that the role you have during the transaction is the role you want.
3. If you opt for an earn-out, try to keep it short and make sure that you run the business during that time.
Roll-over of equity
Buying a business with a roll-over of equity is the best way to align the interests of the management with the buyer because if the business performs, everyone benefits. The sellers also benefit because they can get another turn to profit as the business grows.
A typical transaction
From start to finish, a typical transaction takes between eight months and a year. It could take longer, however, if you need to re-market.
The Oberon model
The Oberon model adds expertise to the upfront piece of the transaction, which involves talking to the client and obtaining information.
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