How to sell your small business
HOMESTARS CEO DISHES ON HER EXPERIENCE
When Nancy Peterson decided to sell her HomeStars business to U. S.-based HomeAdvisor, she found herself on a whole new learning curve.
Peterson left her corporate career to found HomeStars, a rating and referral source for home professionals, in 2005. At the time she didn’t exactly plan to sell the company, she says. In fact she slogged through the usual entrepreneurial challenges, going through several rounds of venture capital funding in order to build the business.
The result was a steadily growing company that made the Profit 500 and W100 lists. It was also growing revenue by more than 50 per cent per year, making it a prime acquisition target.
“Having gotten on a good financial footing, I realized the next step would be potential partners or acquirers,” she says. “Like any entrepreneur, I knew that investors will want a return on their investment whether it’s buying back shares, dividend payouts or through an IPO. You have to figure out a way to give people their money back.”
The timing was right for an acquisition for a number of reasons. “Acquirers want financially healthy companies with a good brand and smart teams. Our trend lines were going up. Our technology integration was behind us. Our team was confident. We knew we had a great product to sell,” Peterson says.
Competitive market forces were also closing in, she adds. “Amazon announced it was getting into home services. Google was changing the game connecting consumers to service providers. Yelp was also looking at the space aggressively. We had to look at this practically.”
As it turned out, HomeAdvisor’s parent company IAC had ex- pressed some interest in 2016. But landing the deal wasn’t easy.
“We thought we could do this on our own, and Bob’s your uncle. It didn’t happen that way,” she says. “We didn’t get a call. Appointments were cancelled. The people we needed to talk to were constantly changing.”
She realized she needed to hire expertise to manage the process. “Selling your company is a fulltime job. Hiring a banker/ M& A specialist was money well spent, and allowed me to keep running the company. The work of a banker is to create demand. He was instrumental in finding the right fit for me and moving the process along.”
All too often, entrepreneurs looking to be acquired try to go it alone, says Stan Christensen, managing director with Arbor Advisors, a California- based investment banking firm specializing in growth technology companies. “Bankers tend to be in touch with many potential acquirers, and can help companies get a better perspective on what they can expect.”
Christensen cites some key reasons that deals can fall apart. “First, entrepreneurs get distracted by managing the negotiation process and are not able to focus adequately on running their business. The business can then become impaired and the buyers will go away.”
The second pitfall is not leveraging the right expertise for the negotiation work. “Principals need to negotiate a plethora of issues in a purchase agreement — some legal, some personal. You need a team that includes lawyers, accountants and bankers.”
Post- merger integration is also important. “You have to think about life after the deal. Most entrepreneurs will stay on with the acquirer and need to understand what that will involve.”
Peterson, who has carried on in her role as CEO of HomeStars, says she is often called upon to share her acquisition experiences at various roundtable discussions, and is always happy to oblige. Her advice: ❚ Timelines are longer than you think. “Selling your company is a long ride, so you have to strap in and stay positive.” ❚ Consider all stakeholders. “You have to take into account what your investors and employees will think about your choices. Choose targets that are like- minded organizations that share your values.” ❚ Realistic evaluations are key. “It’s like real estate. If you price your home too high, buyers are going to be reticent about a deal.” ❚ Talk to multiple companies at once if possible, as that will increase your chances of success. “Creating a sense of urgency helps.” ❚ Don’t disclose too much information in the early stages. “Whatever you initially share with companies will make its rounds, so limit it to scrubbed information that is public.” ❚ Once negotiations begin in earnest, “Get ready to open the kimono and reveal everything about yourself. Companies do their due diligence. They will leave no stone unturned.”
Despite the hard work and challenges, Peterson says, it all turned out. “I’m very happy. Now I’m enjoying a regular salary and have the investment resources I need to grow the Canadian market.”
YOU HAVE TO FIGURE OUT A WAY TO GIVE PEOPLE THEIR MONEY BACK.