Only 25% of Saleable Companies Have Successful Exits
Yes. We're saying that around 75% of the time, after owners have built a business that could be sold, they fail to successfully exit.
Some sales complete but are what we call "unsuccessful" or "sub-optimal." These are transactions where the owners received less than a fair price; or where the terms were below market or the strategic fit was less than ideal. Here's more on why only 25% have successful exits.
Probability of Success
Perhaps the biggest dirty secret in the M&A industry is how often a company contracts with an M&A advisor (investment banker) to sell a business and after spending a lot of money, and year or two of time, the company doesn't end up being sold. Most business owners find it difficult to believe how low their chances of success are when they hire an M&A advisor. It's well under 50% - and here's why.
Getting a Fair Price
We've seen companies sold for tens of millions less than they were worth. Many times the shareholders didn't even know they left millions of dollars on the table.
This can happen because the M&A market is what economists call "inefficient." One of the characteristics of an "inefficient" market is that it's difficult to get comparative information on prices. This lack of information is one of the reasons that owners often agree to sell for less than the fair market price.
What's really interesting is that almost all of these market inefficiencies can be advantages for the seller - but very few are benefits to the buyers. This asymmetry can result in many businesses being sold for as much as 50% more - here are some case studies.
Company sales can also be unsuccessful because the transactions include sub-optimal terms and deal structures. It's quite common for shareholders and executives to end up with long-term, personal liabilities which can exceed all of the money they received for their shares.
Ensuring Your Sale is Successful
There's a long list of things you need to do to ensure that you have a successful sale of your company. The most controllable factor is the quality of your team. The first step is to engage the very best M&A advisor - they'll help with rest of the things you need to do. We're here to help you get started.