February 21, 2025 – Thomas J. Emmerling, PhD, CFA^®, CVA^® recently authored a guest column in Business First of Buffalo.

Selling your business with an edge: The winning strategy

Imagine you owned an asset which represented over 80 percent of your personal wealth and it wasn’t very liquid — in the sense that the likelihood you would be able to sell it after an effort lasting five to 12 months may be no more than 50%.

Facing this situation, wouldn’t it make sense to try to maximize any possible edge before undertaking such an important gamble?

By some estimates, a majority of owners in the lower middle market of U.S. businesses face this precise situation today. Perhaps these owners don’t realize their situation since many of them wouldn’t think twice about spending time and effort to determine the best way to invest their excess cash? Notwithstanding, owners seem to regularly skip exit planning before attempting to sell their most valuable asset. Indeed, according to the latest Pepperdine Private Capital Markets Report for 2024, brokers reported the following percentages of their clients which either had no formal planning or had never met with a broker before engaging in a sale: 64% of their clients with deals valued between $5 million and $50 million; 100% of their clients with deals valued between $2 million and $5 million; and 100% of their clients with deals valued between $500,000 and $2 million.

Many readers might be surprised that the M&A sale process typically takes longer than several months and that the likelihood of closing at all may be no better than a coin flip. In fact, a common misconception among business owners is the equivalence between a profitable business and transferable value. What matters most in any transaction is transferable value — the amount of value delivered to the buyer post transaction. Undoubtedly, a potential buyer will assess risks such as owner dependence, customer concentration, customer retention, vendor reliance, and many others. After quantifying these risks, potential buyers adjust their offer price to compensate for the uncertainties they would inherit if a deal closes. In fact, the Pepperdine Private Capital Markets Report for 2024 cites a “Valuation Gap in Pricing” as the number one reason why a business sales engagement did not transact last year. Moreover, approximately two-thirds of these deals had a valuation gap in pricing between 11%-30%.

In light of these statistics, what’s the winning strategy to improve your odds of a successful outcome? If you are considering an external transfer of your business, it is important to begin to view your business as an investment. Private equity firms specialize in this approach when owning and growing their portfolio companies. They begin with the end in mind — setting expectations for the eventual exit and working a plan to maximize the likelihood for success. They focus on drivers of deal value such as exceptional management teams, a broad customer base, diversified revenue streams, supplier diversity, scalable systems, timely performance reporting, and best-in-class financials. Of course, achieving these results does not occur overnight or over the course of a sales engagement process. The winning strategy commences well before the company is marketed for sale.

Preparedness for a transaction is also part of the winning strategy. Seller leverage ebbs and flows like a sinusoidal curve during a sales process — the seller often has the advantage up until a letter of intent is signed and the due diligence exercise has begun. Well-preparedness for a buyer deep dive into the business, often including thousands of documents, gives the seller an advantage and helps prevent a repricing of the deal and a likely valuation gap between the buyer and seller.

When so much is at stake, having an edge in the M&A process is critically important. You can bet on one thing…the potential buyer thinks so too.

For more information, contact Thomas J. Emmerling, PhD, CFA^®, CVA^® at tjemmerling@dopkins.com.

To read the article on the Business First of Buffalo website, click here.  

Dopkins Capital Advisors provides clients with comprehensive services covering mergers and acquisitions, business valuations, and business exit planning and execution. Our team of financial professionals, with focused expertise in accounting, tax advisory, investment banking, and wealth management, create a leverageable ecosystem to provide a full suite of capital advisory services.

Dopkins & Company, LLP also offers comprehensive accounting, auditing and tax services, forensic accounting, outsourced accounting, as well as wealth management consulting, internal audit support and capital advisory services to privately held and public companies, not-for-profit organizations and individuals.

About the Author

Thomas J. Emmerling PhD, CFA®, CVA®

Tom counsels clients in exit planning and mergers and acquisitions, helping them navigate the complex and often lengthy process as businesses are transitioned to new ownership.