Selling a Small Business Unit

The decision to sell – people rarely say it’s a lost cause until they’re forced to and given negative consequences. During a strong market small failures are easily hidden in large successes. Exception is usually a change in leadership where the small failure is someone else’s fault and can be publicly stated and dumped.

Often for a small one there is a “juice worth the squeeze” choice between sale and shutdown. Sales bring costs and distractions (short and long term). Shutdown brings other costs and brand/morale impact.

Once the decision has been made to sell, you have to run a lean mean process. Key points include:

Complete diligence material but leveraging existing material. Limit how much new stuff you have to create.
Leverage marketing material into presentations.
Leverage internal strategy and budget material as well. That should give you the basics of the competitive landscape and financial projections.
Construct a complete data room but limited to must-have items.
Use a brainstorming session to identify natural buyers. Strategics and also financial buyers that know the business very very well and for home the size is appropriate. Also, consider a management buyout. May be particularly appropriate. If this is an acquired business and the management team/founders are still there.
Since I’m unlikely to use bankers, I need to construct a hybrid team leveraging people from the enabling areas and the business to supplement corporate development.

Have a clear upfront conversation with leadership about valuation, expectations and other expectations. Do you want to avoid cycling around and around so you want a clear “hunting license” upfront? Variables to consider beyond purchase price and in some cases much more important than purchase price include:

Treatment of customers.
Treatment of employees.
Transition services agreement, both in terms of limiting complexity, but also in terms of a potential source of high margin revenue.
PR and messaging around the deal.
Contract terms, notably limiting ongoing liability after closing.
What employees stay and go. Notably is the manager and senior team staying with the parent?

Launch a single wave of communication to potential buyers. Layout a clear timeline that is reasonable, but not super long. For small businesses, most buyers should be able to make it a go. No go decision very early on.

Focus on buyers with these characteristics.

Already have a deep understanding of the space and can due diligence quickly.
Have a track record of buying out of corporate and understand the dynamics.
Clear evidence of an ability to be nimble and move quickly.
Access to capital and whatever other capabilities they will need to take over the business, other than things you are willing to provide in the TSA

Be ready to find new buyers and have your fallback (likely shutdown) plan ready.

Keep an eye on all of your team and buyer team for behavior that doesn’t match a small nimble deal. Lawyers may be tempted to over negotiate as an example.

Throughout keep an eye on incentives. Personal incentives often overwhelm a particularly small deal.