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Profitable Exit Strategy: Selling Middle-Market Business

Women and man pointing at a monitor with data graphics
Analyzing market dynamics

The middle-market sector, a key part of the U.S. economy, has been active in mergers and acquisitions (M&A). Many business owners are considering exits either to retire or to leverage new growth opportunities.

To sell a middle-market business, you need to understand the market, set the right price, and plan for a successful sale.

For those contemplating, "how do I sell my business?" or "how to list my business for sale?", this article serves as a compass to navigate through the process.

Preparing for Selling Middle-Market Business

The journey to selling your business begins with adequate preparation. This phase is crucial as it sets the stage for what comes next.

Getting a business ready for sale implies a lot of effort. From checking financial records and knowing its market value, to improving how it runs are some steps to make more money when you sell.

During this phase, business owners frequently contemplate, "What should be the selling price of my business?" and "How should I determine the valuation of my business for sale?".

Engaging professional advisors can provide insights into optimizing the business value and preparing it for the market.

Understanding the Middle-Market Landscape

Middle-market businesses in the USA usually have profits between $10M to $100M annually. Usually, founders or partners lead these businesses. These leaders have often managed the business for decades.

On the lower end, some businesses make profits between $1M and $10M. These also are part of the broader middle-market spectrum. In this lower bracket, selling a small business is a detailed task. Often, people need nearby business brokers to ensure good outcomes.

Utilizing business brokers when selling a small business has many benefits.

On one hand, they help maintain confidentiality during the sale process. This is crucial to avoid negative impacts if stakeholders or competitors learn about the sale. Their localized focus is invaluable for independent business owners. This focus aids in understanding market dynamics and aiming for the best sales outcomes​.

Additionally, business brokers save business owners precious time. They manage the sale process, allowing owners to focus on running their business efficiently. The expertise of business brokers simplifies the complex process of selling a business. They assist in important aspects of the sale, from accurate valuation to negotiating with potential buyers​.

Knowledge and experience of business brokers or advisors significantly enhance the likelihood of a successful and profitable sale. This is especially true for those in the lower middle-market spectrum navigating the sales process for the first time.

Current Market Dynamics

In 2023, selling middle-market businesses looks promising. A survey called "2023 M&A Outlook" by Citizens M&A Advisory showed companies are doing well and want to grow. This is good news for those interested in selling their businesses.

The survey matches what 80% of similar U.S. companies and investment firms are thinking. They expect their businesses to hold or increase in value in 2023, after a year of big price changes.

Also, Citizens Bank's 12th annual survey saw positive signs in the M&A market outlook. This data reinforces the optimistic sentiment surrounding middle-market business valuations in 2023​.

However, a report by Bain & Company noted a 44% drop in global M&A value in early 2023. This drop is because of uncertainties in the economy and interest rates. This shows caution among both sellers and buyers, which could affect the middle-market M&A activity.

Overall, 2023 looks good for middle-market businesses wanting to engage in M&A activities. However, global factors and market uncertainties could still significantly affect the decisions of sellers and buyers.

Advising the Sale

Advisors help figure out the real value of a middle-market business, by looking at past performance and market trends. They help make a plan for selling or combining, using their knowledge to find potential buyers and negotiate agreements.

In marketing the business, advisors prepare the necessary documents to attract higher bids. They handle negotiations, oversee due diligence, and coordinate closing activities to ensure a smooth company transfer.

Advisors charge 2% to 5% of the sale value, but their expertise is crucial for a smooth sale. Many businesses use brokers or banks to sell their business. These professionals charge a fee upfront to show their commitment to the selling process.

Engaging Potential Buyers

Owners who want to buy smaller businesses are not as clearly defined as those who want to buy larger businesses. The financial reach and expertise required often put these businesses out of the range of individuals and small partnerships. However, they may not provide sufficient benefits for private equity firms targeting larger investments from investors.

Small businesses need to find the right buyer who shares their values and meets their expectations. This shows how important it is for business owners to get help from professionals when selling their business. Professionals can help them find the right buyers and reach their financial and strategic goals.

Structuring the Deal

Employing a structured approach to selling a business can enhance the transaction value, providing sellers with favorable terms. Common methods for purchasing include down payment, promissory note, installment sales, share or asset sales, mergers, and management buyouts.

These arrangements offer immediate funds to sellers, often keeping them engaged with the business's long-term success. You can customize the payment plan to include taxes and interest. This customization helps both parties meet their financial goals and benefits them both.

Unlocking Value in Your Exit Journey

The decision to sell a middle-market business is a monumental one, laden with both opportunities and challenges.

To have a successful exit, it's important to understand the market well for profit. It's important to have good advisors who can help and support you during the process. Additionally, finding suitable buyers who are interested in acquiring the business is essential. Lastly, structuring the deal creatively can help maximize the value and potential of the exit.

If you need help selling your business, there are many online platforms and brokers that can assist you. Just make sure they can assist you with anything you need in the process.

Contact Pacifica Advisors today to create a strong selling plan that increases the worth of your business sale. Our team will analyze your situation, solve any challenges, and make sure the process goes smoothly for you.

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