A large portion of the Alderman & Company Deal Notes® center around the importance of preparation when considering the sale of your company. In a previous Deal Note®, we explained that a failure to prepare for sale could result in an extended length of the sale process and increase the possibility of encountering problems that may derail the process entirely. We now want to look at the negative financial impact a lack of preparation can have.
Potential buyers usually calculate their bids through a combination of discounted projected future cash flows and comparable deals/companies to formulate a multiple to apply to the selling company’s historical EBITDA. This means that failing to prepare for a sale in advance often has a multiplied negative impact. For example, applying an 8 times EBITDA multiple on a $1mm EBITDA difference is actually a $8mm lower valuation on a “comps” basis. Additionally, a lack of preparation will likely result in increased perceived risk of your business, lowering value, and the probability of closing. The negative financial impact of a lack of sale preparation can’t be understated.
To assist future sellers, we offer Long Range Sale Planning (LRSP) services, which include two main areas of focus:
- Financial Modeling – We prepare financial models that show aspirational price targets and specific financial goals required to reach those targets.
- Due Diligence – We use our 22 years of experience selling middle market aerospace and defense companies to identify weaknesses in our client and provide actionable recommendations tailored to help the client remedy these.
Owners considering a future sale should carefully consider how to optimally prepare to achieve the highest possible sale price.
Have a great day everyone.
Ryan Kirby
Vice President
