It is much easier today than it was 15 or 20 years ago for smaller companies in Midland, Texas, to gain liquidity through an initial public offering (IPO). Business intermediaries (Midland business brokers and small to midmarket company merger and acquisition specialists) has burgeoned in the late 1990s, making it much easier for private companies to find acquirers.

Unlike the owner of publicly traded securities, the owner of a small Midland company cannot (1) call a securities broker, (2) sell the Midland business in seconds at a predetermined price and with a nominal transaction commission (like the stock market), and (3) realize the cash proceeds of the sale in three business days (also like the stock market). Rather, selling a Midland business is a lengthy, expensive, and uncertain undertaking. Fortunately, a Midland broker can help you sell your business. 

A business broker’s responsibilities include: (1) maximizing the net proceeds, (2) ensure the closure of the transaction, (3) negotiate the best possible terms, (4) help ensure confidentiality, (5) speed up the deal process, (6) and minimize the burden on the owner.

1. Maximize Net Proceeds.

As a Midland business broker’s responsibility is to perform a rigorous analysis, develop professional marketing materials, and negotiate the best possible deal for Midland business owners. Each step of the marketing process is tailored to the owner’s particular situation and designed to exploit competition amongst potential buyers in the Midland area.

2. Ensure Transaction Closure

When buyers stretch from a pricing perspective, problems related to financial performance and projections, accounting, customer concentration, employment agreements, non-compete agreements, industry downturns, etc. are all magnified. A Midland business broker is equipped to deal with such issues to keep them from becoming deal-killers, which should be attributable to an experienced team of professionals.

3. Negotiate the Best Possible Terms

During the negotiation process, Midland business owners are shielded from the sometimes emotionally tense discussions with the buyer. A business broker will negotiate the transaction, which enables the Midland broker to extract better pricing and terms than a business owner would otherwise be able to accomplish, particularly one who has not previously been involved in a business sale. Meanwhile, the relationship between the Midland business owner and the buyer is unaffected, which is especially important during the transition period.

4. Help Ensure Confidentiality

Confidentiality is interwoven with every step of our marketing process to avoid disruption of management and employees and to maintain positive relationships with customers and suppliers. Everyone requesting confidential information is required to sign a Confidentiality Agreement. For competitors included in the process, the marketing approach and materials are tailored to ensure that sensitive information is not placed in the wrong hands.

5. Speed Up the Deal Process

In deal-making, time is the enemy. Hazards, including economic changes in the Midland economy or developments within the seller’s businesses or markets, can befall a deal with the passage of time. Therefore, a Midland business broker can speed up the transaction and generate momentum, which lowers the risk of failure to close.

6. Minimize Burden On the Owner

During the marketing process, it is essential that the seller continue to achieve the aggressive strategic and financial goals set by management and communicated to potential buyers. Accordingly, the Midland business broker’s role is one that emphasizes minimal burden on the owner (as well as the corporate staff should the owner choose to make them aware of the sale) in order that he or she may continue to run the business.

There are unique factors to be aware of in the sale of any Midland-based business. These factors include the sale time horizon, selling costs, sale price risk, and how the purchase will be funded. These are the most common questions answered by Midland business brokers. We will take a short dive into each of these factors.

Time Horizon

It may take many months, and in some cases years, to complete either an offering or a sale of a closely held business. To some extent, the time factor may be offset by cash flows available to the Midland business owner awaiting sale, if they are equal to or greater than the company’s cost of capital on a stand-alone basis. 

Selling Costs 

There will be many costs attendant to the sale:

1. Auditing and accounting fees, to provide potential buyers the financial information and assurances they demand;
2. Legal costs, at a minimum, to draft all the necessary documents and often to clear away potential perceived contingent liabilities and/or to negotiate warranties; and
3. Administrative costs on the part of business owners to deal with the accountants, lawyers, potential buyers, and/or their representatives. Administrative costs include the costs of hiring a Midland business broker.

Risk

There is a high degree of risk concerning the amount of the actual sale price that will be realized relative to the estimated sale price. This is (1) partly because business valuations for Midland-based companies are only estimates and (2) partly because internal and/or external factors may influence the business value during the sale negotiation period. 

Furthermore, in many cases, there is substantial risk concerning whether the business can be sold at all. There is always considerable risk as to whether a transaction can actually be completed at any given stock price. A knowledgeable Midland business broker will make sure the initial price determined is a price that the seller is comfortable with. The broker then will ensure the value is marketed and communized effectively.

Form of the Proceeds

Even when a sale is complete, the business sale proceeds may not be all in cash. Often, the seller may receive part of the business sale proceeds in a note or contingent compensation, or in stock of the acquiring.  For closely held company sales through a Midland business broker, seller financing through a note is involved in the vast majority of transactional cases. Usually, these seller paper notes are at interest rates below market rates for notes of comparable risk. Furthermore, many close corporation “deal prices” have a portion of the payments contingent on given levels of revenues or earnings, further reducing the cash equivalency value.

Typical bank loans require assets to be pledged as collateral to secure a loan without giving up title, possession, or ownership rights, such as income generated by the asset. However, ownership interests in a Midland business generally do not make satisfactory bank collateral. If, while awaiting a sale through a Midland broker, an owner of a controlling ownership interest wants cash for an emergency or an opportunity or whatever, it will be time-consuming—and may be impossible—to borrow against the estimated value of the business interest.