Selling your biz Part 2
Don't let the search for a buyer kill you
Last week was Expo West and it was bigger than ever.
On the 2nd day of Expo West Silicon Valley Bank’s failure was announced, and for all the startups and investors with deposits there, the mood was panic. We now know deposits are secure and for brands raising on crowdfunding platforms like Republic, SVP exposure will be required in investor disclosures before any offerings are completed.
The good news: There was so much excitement and buzz this year at the show I can officially say Covid vibes are over. Congratulations to all the NEXTY award winners including my favs Meati, Alexandre Family Farms, Spinster Sisters, Hey Day Canning and Amazi. And big congrats to pitch slam winner Maazah!
Picking up where we left off:
Last week I talked about selling your company when the writing is on the wall. Whether you’re big enough for an IB or not, there are some basic steps that will make the M&A search go as smoothly as possible.
Searching for a buyer
If you aren’t big enough to hire an IB or a broker, your network will be the best way to meet potential buyers – suppliers, processors, co-mans, advisors/mentors and other brands, as well as peer brands. Peer brands that have recently gone through M&A might be open to sharing their buyer search contact list. This contact list could include search funds, SBA financed food companies, angels and entrepreneurs. Only ask brands that you’ve developed and maintained a relationship with (see Why join an accelerator or incubator?). Getting your hands on a high-quality list is gold, so the next step is not messing up the outreach process if you have this chance.
How to not mess up the outreach
Initially when it’s time to sell, founders tend to have a lot of adrenaline, which is awesome. But all that energy can get zapped quickly if you are treating this like a sprint vs a marathon. One way to pace yourself is to have a killer one-pager that speaks to the business opportunity at a high level, with supporting materials as a follow up. This helps you avoid the burn out that occurs by having too many calls too early in the process. Save your breath for prospects that are truly interested after having vetted you.
A good one-pager should filter out all non-qualified, not-interested buyer prospects. It will include your company overview, financials, and the investment opportunity.
I want to call out the financial section of the one-pager because this is where most people fail to nail it. This is the section that shows your revenues and gross margins for the past, present and estimated future. What you must do here, is prove that future revenues and margins are pretty much guaranteed.
Remember last week when I said, “have something to sell”?
What you want to bullet:
Repeat sales at your points of distribution whether they are physical or digital.
For retail, that metric is ACV (stands for All Commodity Volume and is a measure of distribution) over a time period.
So, if you’ve been in HEB for more than a year for example, you’ll want to show your %ACV for HEB for the last 12 months. Higher %ACV equates to consistent sales throughout that retailer.
Show velocity through units sold per point of distribution on an average weekly basis.
If you don’t know these metrics because you don’t buy data, that’s OK, focus on calculating your velocity through average units per store per week from store movement reports or via cases shipped from DCs to individual store locations.
D2C and other ecommerce repeat and velocity metrics are easy to gather from your vendor data portal.
The point here is that an acquirer is only interested in paying for an existing business when they know that it is a going concern. If sales are declining because you’ve pulled back on certain distribution, but other distribution is alive and healthy, address that and be prepared to explain. The worst thing you can do is show flat to declining revenues with no explanation.
Lastly, the investment opportunity section of the one-pager should give a sense of valuation by indicating your goal in acquisition, be it to make a sale based on a multiple of revenue or EBITDA and what you think that multiple range is, and any deal terms you’d be open to.
A killer one-pager will do a ton of the upfront work for you, so you will only be talking to interested buyers. Interested buyers can then be showed your data room where all supporting documents can be found.
What should be included in your data room and what to be ready for during due diligence will be covered next week.
All my best,