Honestly, I get this question a lot! And my answer is….. it depends on who the buyer is and how well you know them. But my standard answer WAS 3 – 9 months. *
Up until just a few months ago, I would have said, the quickest you can complete a transaction is 3 months (assuming the buyer and seller already know each other well and were both in the same industry). I say this from personal experience in selling one of my own companies. More on that below.
However, this was recently put to the test as I was approached by a seller who had an interested buyer and wanted to complete the transaction in 45 days. So, we had to receive and finalize the Letter of Intent from the interested buyer, finalize the Definitive Agreement and provide all the due-diligence items requested. Honestly, I wasn’t sure it could be done, but we did it!
YES, it was a whirl wind, but both the buyer and seller were incredibly motivated. The buyer was a competitor in another part of the country, so they understood the business (i.e., the products, the margins and the future market opportunity.) It also helped that the buyer was experienced and had a legal and due diligence team on standby. Not to mention, the buyer had a CPA firm perform a quality of earnings audit while we were simultaneously negotiating contracts. This is not your typical deal, but I did want to share it with you, so you know if buyers and sellers are motivated, it can be done that quickly.
The chart below, lays out the 6 stages of a transaction, and you can see the number of months it typically takes to complete each stage. I won’t go into detail here, but I do devote a chapter to this in my book Get Acquired for Millions. And it’s worth seeing the visual of how much time a typical transaction takes. (The area highlighted in green is the actual transaction in months from start to finish.)
The chart is a “typical” transaction where the buyer and seller don’t know each other and haven’t yet met. But this timeline can be shortened considerably, especially if the seller, either knows your business, (i.e., a competitor) or has worked with your company in the past and knows you and your team well.
In the chart below, you can see based upon the buyer type and how well they know/understand the business, the timeline can be shortened greatly. Let me give you a few real and personal examples:
Selling to a Shareholder
The first company I personally sold was my technical staffing firm. I sold it to my partner. She obviously knew the business well, so we were able to get the transaction completed in only three months. What took time here were first coming to an agreement on price – we had some industry multiples to follow, and getting the agreements written. We actually shared the same attorney, which made writing the agreement easier as we both wanted the transaction to be as equitable as possible. We had a great relationship and so it made things easy, but had we not, then this step would have taken at least another month longer.
Selling to a Competitor
My second company, an ERP/CRM consulting firm, was acquired by a competitor, who sold the same products and services, but in a different part of the state. They really knew my business well, and so their focus was just on making sure my client based was healthy and that my numbers were accurate. That transaction didn’t take more than 5 months; two months of negotiations back and forth on price and terms, one month on due-diligence and a couple of months on the agreements. Again, very little education was required as the buyer understood my business, understood the margins and understood the value of my employees. This timeline again assumes you know in advance who that buyer might be. If you are out searching, this will add another few months, per Stage II above – Buyer Identification.
There are however, situations where you will sell to someone who is a competitor who sells a similar but different solution to yours (i.e. a competing accounting, marketing or security software.) A little more time will be needed for the buyer to better understand the sales, the margins and the programs of the vendors you may be purchasing product from.
Selling to a Private Equity Group
My last company sale was to a Private Equity Group (PEG) and it took 9 months from start to finish. It truly followed the Transaction Timeline mentioned above. I knew I wanted to sell to a PEG, but didn’t know to who specifically. It took us a good three months to find a few equity firms that were a good fit as a buyer for my company. It also took some time to “educate” the PEG on my business, where it was headed and who my major vendors were and the margins on the products I sold. Since they didn’t understand the business, (not uncommon with PEG’s) they also took longer on the due diligence, reviewing transactions in detail to understand costs; products, infrastructure and people. They also spent a lot of time understanding the software I used for accounting, ticketing and marketing as they would be taking these applications over post-sale. Most PEG’s have a due-diligence and legal team on standby, so when they do identify a potential seller, they are ready to move quickly. This timeline has also been consistent with other transactions I have closed for sellers who have sold to PEG’s.
Finally, there is the individual buyer or search fund investor. Some individual investors have cash reserves to make a transaction or at least enough for a down payment, but both typically have to present the potential transaction to a bank or other fund for approval. This can take time and I find usually adds to the length of the deal. This type of investor also doesn’t invest that often, so they don’t have an entire due-diligence team on hand to immediately begin looking through your financials, contracts, etc. They are also not as knowledgeable about your products, services and vendors, so it tends to drag out the transaction longer while they educate themselves about your business and your industry. This of course is not the case with every individual or search fund buyer, but it is more often than not. These are not my most favorite types of investors, but they can at times come to the table with a better offer (terms and price) than others.
So, as you can see, there is no typical answer to the question of how long an M&A transaction takes, but at least now you have an idea based upon the type of buyer. Not sure if a Strategic or PEG is a better buyer for you? Be sure to take our Quiz – Strategic vs Financial Buyer to determine which buyer type is most aligned with your business.
*My explanation above assumes a transaction under $100M in revenue. Larger deals can take longer periods of time. We are also assuming, that this transaction doesn’t include real-estate, extensive inventory or property, plant and equipment. So, I am really answering this questions as it relates to a technology service business.