Preparing a Mid-Market Company for Sale: Some Thoughts

January 2019

Preparing a company for sale is an intricate process that demands forethought, strategy, and proactive effort, with early preparation offering significant advantages. Reflecting on the factors that influence a successful sale, I’ve learned that misaligned thinking or a passive approach can hinder outcomes, while a focus on four essential areas—active engagement, thorough research, fostering bidder competition, and showcasing the company’s future potential—can significantly enhance success. Preparing well in advance not only smoothens the sales process and boosts the eventual sale price but also provides a safety net for unexpected opportunities, such as unsolicited acquisition offers, which are especially common for businesses with valuable intangible assets.

In my view, there’s little distinction between running a company well and running a company with the eventual goal of selling it. A well-operated business, focused on first-class execution, inherently builds value. Maximizing market opportunities while delivering exceptional customer service creates sustainable growth. When a company meets real market needs and serves its customers effectively, it naturally attracts potential buyers.

If selling is on the horizon, I believe preparation should begin six months in advance if not a a year. Many owners delay or neglect this step entirely, only to find themselves too far into the sale process to implement meaningful changes that could impact the valuation. However, addressing key areas beforehand can significantly enhance the company’s appeal and value.

Reflecting on Key Questions

To ensure no value is lost, focus on three core actions: improving profitability and operations, instilling buyer confidence by presenting a well-organized business, and reducing risks that could deter potential buyers.

Foundations of Value Creation

At the heart of value creation lies a clear and compelling long-term vision. As a business owner or leader, it’s essential to define what success looks like, not just for the company, but also for your personal aspirations. This vision shapes strategic priorities and ensures alignment when planning a sale or transition.

Central to building value is a focus on key value drivers, including revenue growth, profitability, and risk mitigation. A scalable business model is crucial—design systems and processes that facilitate growth without overburdening resources. Meanwhile, deep market understanding, backed by research into industry trends, competition, and customer needs, positions your company strategically for success.

Surround yourself with a strong leadership team, empowering capable individuals who can steer the company forward. Foster a culture of accountability, where everyone understands their roles and takes ownership of outcomes. Consistently measuring performance through key performance indicators (KPIs) keeps the business on track and enables informed decision-making.

Enhancing customer relationships is another cornerstone of value creation. Strong loyalty and engagement drive repeat business and referrals, which are critical for sustained growth. Furthermore, diversifying revenue streams helps reduce dependence on a single product, customer, or market—a key consideration for any potential buyer.

Streamlining operations through process improvements and leveraging technology not only enhances efficiency but also strengthens the company’s resilience. Documenting processes ensures that institutional knowledge is preserved, reducing reliance on any single individual. Risk mitigation is equally vital; addressing legal, financial, and operational vulnerabilities proactively boosts buyer confidence.

Developing a reliable sales engine is crucial for consistent performance. A predictable and replicable sales process instills trust in buyers. Investing in branding and competitive differentiation through innovation or quality further enhances the business’s attractiveness. Protecting intellectual property—such as patents, trademarks, and proprietary methods—also safeguards long-term value.

Financial discipline is key. Maintaining accurate financial records, optimizing cash flow, and keeping costs under control signal strong management to potential buyers. Reducing owner dependence ensures that the business can thrive independently, an important factor for buyers considering scalability.

To sustain value over time, nurture a culture of innovation and adaptability. Recurring revenue models, such as subscriptions or contracts, provide stable cash flow. Strong cash flow management, with an emphasis on liquidity and reinvestment, supports healthy operations and future growth.

Building strategic partnerships can expand reach and capabilities, while mergers and acquisitions present opportunities for significant growth. Exploring new markets, whether geographic or demographic, allows for diversification and increased market share. Effective governance practices not only enhance sustainability but also ensure compliance, a critical factor during due diligence.

Preparation for due diligence is an ongoing process. Organized records and transparent systems make the evaluation process less arduous for potential buyers. Regular valuations clearly understand your company’s worth, helping you refine strategies and monitor progress toward your goals.

Ultimately, aligning personal and business aspirations creates a balanced and fulfilling journey. Whether the objective is growth, liquidity, or transition, a well-prepared business built on strong fundamentals will always be positioned for success

Factors that Influence Mid-Market M&A Sale Outcome

Passivity

One of the most common pitfalls is passivity. The best buyers are often not actively seeking acquisitions; buying a company might not even be on their radar. These high-potential purchasers can only be found through an active and deliberate search. By contrast, venture capitalists and large corporations seeking to sustain shareholder value are always on the lookout but rarely pay a premium. Passive selling often limits your reach to these less optimal buyers.

Selling a company is no different from selling a product—it requires active outreach. For smaller assets, contacting 200 to 300 prospective buyers is often necessary to identify just two or three strong contenders. Moreover, the search must extend beyond the local market. International buyers, particularly those seeking access to new regions, often see acquisitions as strategic investments and may pay a premium for the right fit.

The Role of Research

Comprehensive research is the backbone of any successful sale process. Identifying and understanding potential buyers is critical, and this is where skilled advisors and bankers can provide invaluable support. Even with professional assistance, this phase can take several weeks, and the effort required to generate hundreds of leads is significant. However, the correlation between the number of companies approached and the likelihood of finding the right buyer cannot be overstated—"the more you look, the luckier you get."

Thinking creatively and laterally during this process is also essential. While competitors might seem like the obvious potential buyers, other industries or markets may provide equally compelling opportunities. The tech markets of Europe are pretty globalized, with an expanded pool of potential buyers, often resulting in higher premiums for strategically significant acquisitions.

Creating Bidder Competition

If there’s one factor that dramatically influences the success of a sale, it’s bidder competition. Establishing a choice of strategically motivated, financially strong buyers creates a market for your company and puts the seller in the driver’s seat. Without competition, you’re left with little leverage, often forced to concede on price, terms, or both.

Bidder competition impacts three critical aspects of a deal:

Speed – Multiple buyers can accelerate the timeline of the deal.

Price – A competitive environment often drives up the sale price.

Terms – Sellers retain greater influence over deal structure and conditions.

The absence of competition, on the other hand, shifts control to the buyer, increasing stress and reducing the likelihood of a favorable deal. Choice is power in negotiations, and securing it must be a priority.

Focusing on Future Value Creation Potential

When selling a company, what you’re truly offering isn’t its past or current performance—it’s its future potential under the buyer’s stewardship. Acquirers are most motivated by two things: the quality of the client base and the potential for growth. The ability to articulate and demonstrate how the company can grow in the buyer's hands is key to maximizing its perceived value.

 Each buyer will assess this potential differently, influenced by their strategic goals and perceived benefits. For example:

A complementary business may see opportunities for cross-selling.

An overseas buyer may value market access.

A competitor may focus on cost savings, elimination of rivalry, or increased pricing power.

These factors can lead to significant disparities in offers, often up to three times the valuation range. Such variances are driven by the buyer’s unique motivations rather than standardized financial metrics like profit multiples.

Strategic Fit and Perceived Value

Strategic fit is often the differentiator that makes one buyer willing to pay substantially more than another. A buyer’s unique ability to leverage your company’s assets, client base, or market position creates value beyond traditional valuation methods. For instance, companies with guaranteed income streams or strong cash flow are often perceived as lower-risk investments, which can command higher prices. The most effective defense against undervaluation is ensuring a choice of buyers. If one prospect fails to recognise the value of future growth, another likely will. The buyer and seller contribute to that growth, and both deserve to share in its rewards.

Considered Communication

One of my earliest realizations was the importance of confidentiality and clear communication. From deciding when and how to inform staff to carefully framing the narrative, every detail matters. I’ve also learned that confidentiality, while important, is often more of a perceived issue than a real one.

Proper Documentation

Having the right documents ready is non-negotiable. Preparing a comprehensive checklist early on has saved me from unnecessary setbacks. Key items include:

The prospectus, in particular, is an invaluable tool. It’s not about dazzling buyers with features but about selling benefits—why this acquisition makes sense for them. Keeping it concise (15–20 pages) and focused on future potential rather than past performance is key

First Impressions

While seemingly minor, first impressions count more than I initially realized. Simple steps, like ensuring that staff interact professionally with customers, Glassdoor reviews, and product reviews, can make a significant difference. If the asset is very small, then buyers might ask for customer reference to gauge the company’s overall capabilities, and this awareness has prompted me to focus on creating a polished, positive image at every touchpoint.

Clarifying Objectives

Before entering the sales process, I’ve found clarifying my objectives critical. Why am I selling? What’s my ideal price? What are my timelines? These answers influence the type of buyers I target and how I structure the deal. Without clear objectives, planning becomes aimless, and I’ve learned that uncertainty at this stage often leads to compromises later.

Conducting Dry Runs

Preparation isn’t just about assembling documents or crunching numbers—it’s also about readiness for tough questions and negotiations. Running management presentations and “dummy” negotiations has been one of companies' most effective preparation methods. These dry runs simulate potential scenarios, helping me anticipate traps, refine responses, and build confidence.

Ensuring Clean Records

A clean financial and operational slate is non-negotiable. Over time, I’ve identified potential deal-killers—unresolved litigation, phantom employees, tax evasion, and even warranty issues—and worked to address them proactively. Transparency with financials, product details, and operational vulnerabilities ensures no unpleasant surprises during due diligence.

The Buyer Profile

Imagining the “ideal buyer” has been a valuable exercise. I’ve often asked myself:

Interestingly, some of the best buyers didn’t fit the “ideal” profile I initially envisioned. Many weren’t even actively looking for acquisitions. But by presenting a compelling opportunity with a sense of urgency, I’ve found that even the most opportunistic buyers can become motivated purchasers willing to pay a premium.

Positioning and Financial Strategy

Positioning my company for a sale has often required fine-tuning its financial and operational metrics. For instance, I’ve explored raising prices in the lead-up to a sale when market conditions allowed, enhancing short-term profitability. This approach has not only made the company more attractive but also maximized its valuation.

A detailed review of costs to identify any expenses that wouldn’t carry over to a new owner. While buyers might not offer full credit for these savings, in a competitive bidding scenario, they’re often willing to share some of the value. Excessive or unnecessary costs are purged—every dollar saved translates into multiplied value when a business is valued based on its earnings

Short-term strategies, like aligning R&D and advertising expenditures to yield immediate returns, can further enhance profitability leading up to the sale. These adjustments have proven crucial in presenting a leaner, more attractive business.

A company’s value is closely tied to the quality of its earnings and its perceived risk profile. Smaller businesses often face higher risks due to reliance on a limited number of customers or suppliers. I’ve seen firsthand how widening the client base—even if it means reducing dependency on a major customer—can significantly improve buyer confidence. For example, reducing a key customer’s revenue share from 50% to below 10% can transform how a buyer views risk.

Assets that don’t contribute directly to the business’s core operations, such as surplus property or investments, should be addressed before the sale process begins. I’ve found that excess working capital—whether from unnecessary stock levels or poor credit collection—often ends up as a “gift” to the buyer if left unaddressed. Best strategy is to trim these surpluses and either reinvest the cash into the business or factor it into the purchase price. Reassessing undervalued assets, like properties or investments, ensures they’re accurately reflected in the sale valuation.

Tax and Financial Structures

Tax implications can significantly impact a transaction. For instance, final salary pension schemes can create complex valuation issues. I’ve worked to transition such schemes into defined contribution plans ahead of a sale to minimize complications. A review of accounting policies, particularly provisions, depreciation, and recognition of profits, is another critical step. Releasing excessive provisions over time, for example, can boost reported earnings and enhance the company’s valuation.

Strengthening the Management Team

Buyers place a premium on strong, autonomous management teams—especially when the current owners plan to step away post-sale. A good practice is to focus on documenting management decision-making processes, formalizing roles, and even elevating key managers to the board to reassure buyers of the team’s self-sufficiency. In some cases, taking an extended holiday before the sale has demonstrated that the business can thrive without my day-to-day involvement.

Securing the buy-in of senior management is equally important. Incentivizing them through performance-based schemes tied to the sale has ensured their commitment while addressing potential retention concerns for buyers.

Addressing Intellectual Property (IP) Issues

Poorly documented intellectual property can derail a deal faster than almost any other issue. I’ve learned to ensure that ownership of all IP—whether software, patents, or trademarks—is clearly established and supported by agreements. For software companies, having robust quality control documentation for design specifications, code reviews, and risk analysis reassures buyers and speeds up due diligence.

Strategic and Operational Adjustments

Every strategic decision in the lead-up to a sale must consider its impact on buyer interest. For example, extending a long-term lease on office space might deter a buyer planning to integrate operations into their own facilities. Adjustments to operational policies—such as streamlining supply chains or renegotiating vendor contracts—can further enhance the business’s appeal.

Mitigating Risks

Understanding and mitigating risks has been a critical aspect of preparing for a sale. Whether it’s diversifying the customer base to reduce dependency or addressing market or technological risks, buyers need to see that potential threats have been anticipated and managed; high customer concentration and potential IP infringement are red flags for the buyer. By staying close to this customer and demonstrating their loyalty during due diligence, we were able to turn a potential deal-breaker into a non-issue.

Up-to-Date Financial Reporting

Buyers expect up-to-date and accurate financial information. Producing monthly management accounts and realistic profit projections has become standard practice for me during the sale process. When a company lacks a history of meeting its financial targets, projections explicitly created for the sale can seem unreliable. A track record of accurate budgeting instills confidence and strengthens the company’s position.

A fast-growing firm will always have areas that are not perfect. The wise CEO spends the company’s resources where they are the most productive—usually building sales and serving customers. Sometimes, administrative issues can take a backseat. When preparing a company for sale, issues and surprises can pop up. Most of these are not critical issues but it is a good idea to handle them before the sale process gets too far. Many times these are simple housekeeping issues. Establish sound systems, procedures, and accounting practices. They will pay dividends when the time comes for a sale of the company.