Sep 30, 2022

M&A Sellers: Developing an Exit Frame of Mind

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M&A Sellers: Developing an Exit Frame of Mind

Planning to sell your company someday? Even if it’s two, three, five years down the road, developing the right exit frame of mind now will pay off handsomely in the future. We’ve already shared several ideas on the topic of preparing to sell your company, but we’ve got more to say about it because here’s the thing: it’s a myth that selling your business will be easy – very few successful sellers just got lucky.

The mergers and acquisitions landscape is littered with killed or failed deals for business owners who believed they were well-positioned to sell their business because they were masters at running it. Not so. Successful sellers lay the groundwork for their exit years in advance, developing processes, tweaking operations, and building out a complete management team, constantly putting themselves in the mindset of a potential buyer.

Optimize your business for sale today, tomorrow, and every day – there are several critical but simple actions you can take now that will pay dividends when you’re ready to sell. Let’s dig into a few key ideas.

Get Your Accounting in Order

Countless deals die because the seller’s books are sloppy and the seller doesn’t truly, deeply grasp their financials, and needs months of clean-up to present them to a potential buyer. Even if the deal moves ahead, a lack of in-depth understanding of your financials means you risk leaving money on the table.

The right exit frame of mind means a regular focus on your financials. Review your P&L, cash flow statement, and balance sheet monthly, even weekly. A few times a year is inadequate to fine-tune your expertise and the insights you need to recognize and act on subtle areas for improvement.

Businesses are typically sold on a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). There is any number of fairly painless ways you can boost your EBITDA, and thus your sales price, by focusing on profitability, i.e. enhancing revenue and streamlining expenses.

Another common area for improvement is minimizing addbacks. Many sellers run many quasi-personal expenses through their business. Those season tickets you purchase each year “to entertain clients”? Your company vehicle that is a tad too luxurious to be considered basic transportation? Such expenses are incurred for you, and not for the benefit of a future buyer.

Guess what happens when a buyer sees your financials overpopulated with addbacks? If you’re lucky, the price they’re willing to pay for your business goes down, but that once-eager buyer could lose interest and kill the deal. They can’t clearly see what they’re really buying.

Changes should be introduced long before you plan to sell your company. Sellers who promptly present clean, consistent financials have infinitely more credibility with a buyer than the seller who must try to convince their buyer that numerous improvements could be made to EBITDA … It’s a weak negotiating position and detracts attention from the deal, often derailing it completely.

Tie Up Your Management Team

When you’re ready to sell your business and walk away from it, a buyer needs to feel confident that it will continue to thrive without you. Once again, this is not a quick fix you can make when you’re ready to sell.

The right exit frame of mind means planning well in advance, always thinking of how you can round out an effective, self-sufficient management team with the skills and relationships to take your place.

Consider compensating key team members with equity in the business, which not only builds employee loyalty and aligns interests but also improves EBITDA (see above). Share your exit plans with your team before you are knee-deep in the selling process and discuss potential future scenarios regarding their roles going forward.

Prepare for a Competitive Auction Process

A competitive auction is key to garnering the most attractive offer and becoming a successful seller. Think of it along the lines of selling your home: it’s unlikely you would blindly accept an offer from somebody who calls you out of the blue.

More likely, you will work with a real estate agent to list your house and solicit viewings and offers. You and your agent will compare your multiple offers and select the offer with the terms and price that best suit your needs.

Likewise, if you receive a single offer to buy your business, that buyer is calling the shots and you may not know what you don’t know. Is their offer even in line with the market? When multiple buyers compete to acquire your business, you call the shots and buyers are put on notice that they need to submit their best offer with attractive deal structure and pricing – market dynamics at their best.

A good investment banker will maintain a level playing field for all potential buyers by releasing prepared information in stages, and will set a deadline for offers. Your M&A attorney, investment banker and other deal professionals will help you evaluate and compare the offers, and you will negotiate a letter of intent with your preferred buyer.

The right exit frame of mind means you’ve thoughtfully prepared for the process – once again, not an overnight task. It means you’ve considered a list of potential buyers for your business (particularly the strategic buyers already involved with your industry), the information that your investment banker will use to describe your business to buyers,

the materials and effort needed to populate your data room, and your must-haves for a successful deal. It means you’ve developed relationships with a skilled M&A attorney, investment banker and other deal professionals to ensure that you are ready to respond to buyers’ requests and offers quickly and thoughtfully.


Successful M&A sales don’t happen by luck or accident. Develop the right exit frame of mind and groom your business to make it as attractive as possible to buyers. The business owner with the right exit frame of mind can make subtle changes in the operation of their business over the years that will pay huge dividends.

At Linden Law Partners, we specialize in quarterbacking all aspects of M&A deals, and we’ve represented buyers and sellers in hundreds of M&A deals. While there are many common threads among the most successful transactions, we recognize the uniqueness and personal attention required for each deal. Contact us to discuss how we can help.

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