How Long Does It Take to Sell a Company?
Depends. It can take a couple of weeks for a hot technology company, or many months, if the buyers aren’t lining up around the block, which is a rare occurrence these days.
Whereas the timing of a transaction (up-market, down-market, hot technology space, etc.) is certainly of importance to the general consideration of whether or when to sell, the execution time from when the decision to sell has been made until the transaction closes is relevant in any market.
Obviously, there is a time value of money, and one dollar in a couple of weeks is worth more than one dollar in six or nine months. The simple compounding effect gets amplified for companies with a high cost of capital – such as venture capital.
But more than that, once deals are marketed they tend to have a limited shelf-life before they become stale. Interest in the company may be waning, and the economic situation of the company as well as the larger economy can change negatively as time drags on. Any potential acquirer will do a “make or buy” analysis. The assessment can change over time as the deal lingers on.
It is a crucial condition to a successful transaction that a sense of urgency among the buyers be constantly stoked. This holds true for a sale in an auction as well as for negotiated sales.
Confidentiality is another consideration: the longer the deal process lingers, the higher the likelihood that word gets out. This may be an advantage if the company is selling its assets and wants to target the largest possible universe of buyers, but it can be detrimental if it keeps customers from buying its products pending a transaction, or employees start to become nervous over the outcome of the transaction, or competitors start taking dead aim in the marketplace.
The Brenner Group has developed a formulated process for the sale of a company: Auction 90™ . As the name implies, in its purest form it takes 90 days from the start of the engagement until a buyer is contracted.
The process has been designed in an auction setting and can be executed as an open auction (where the goal is to maximize exposure) or a limited auction (where a limited number of bidders are corralled along a pre-defined process to expedite the transaction.
There are several factors that influence the execution time:
1. Asset sale versus stock sale
As the name implies, a company sells only its assets (or a sub-set of its assets) in a piecemeal manner. Any proceeds to the company will then be distributed to debt- and equity holders. In a stock sale, the owners of the company sell their stock to the acquirer, thereby disposing of the company in a single transaction. The assets (and liabilities) will continue to be owned by the company. Usually, asset sales can be executed faster than stock sales, in part because stock sales require more analysis and due diligence by the buyer.
2. Complex due diligence
Obviously, the more there is to a company, the more due diligence there is to do, and the longer it takes for a transaction to close. Complex technology, employees, overseas offices, and contractual relationships all take time to analyze. The further a company is along in terms of customer buy-in, product development, and actual sales, the easier it is for an acquirer to do due diligence.
3. Economic and industry environment
Obviously, deals will take longer in times when everybody is hunkering down and trying to cut costs. There are exceptions to the rule – if companies provide technology or products deemed “mission critical”, deals will still be done expeditiously. For example, Electronic Arts acquired online game company Playfish for $375 million at the same time EA announced layoffs of about 1,500 employees from its core staff.
4. Cash deal, share deal, merger
If the acquirer pays in cash, there is little to analyze. A transaction where the acquirer pays with shares needs additional scrutiny: are the shares registered, or restricted, or readily marketable, what is the trading volume, etc. The more weight on deferred payment, the higher the risk for the seller; especially as the seller has little control over the acquiring company’s operations going forward.
5. Auction, negotiated deal, limited exposure auction
Usually, an auction will lead to a speedier close, as it keeps all participants focused on a deadline. While a negotiated sale for a highly sought-after company can proceed swiftly, undue urgency may not leave the seller the necessary time to investigate other strategic options that could result in a higher price. Read more about auctions in my previous post Going…going…GONE!
Ideally, technology companies are bought, not sold. Employing the right sale strategy ensures an optimum transaction value.
Gunther Hofmann is a Vice President of The Brenner Group and has done extensive work in valuations, M&A, venture capital, and corporate finance with significant international experience in small firms as well as global corporations. Gunther earned a Masters Degree in Electrical Engineering and Business Administration from Darmstadt University of Technology in Germany, and was a Visiting Scholar at UC Berkeley. He is a holder of the Chartered Financial Analyst designation, and a member of the National Association of Certified Valuation Analysts. Gunther is Chairman of the Software/IT Industry Group of the German American Business Association (GABA).
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