Ask the Experts Radio Show: Selling a Distribution Business?

In a recent “Ask the Experts” podcast Doreen Morgan, owner of Sunbelt Business Brokers Atlanta, talked with Steve O about selling a distribution business.

Who is Doreen Morgan and Sunbelt Business Brokers Atlanta?

Doreen Morgan began her career in franchise development, helping people who wanted to purchase a franchise. She worked with five brands, including Mrs. Fields cookies. Doreen helped franchisees find locations and move through the franchising process more smoothly. An equity firm bought out her company, and they asked her to help sell their 350 corporate sites. As the list dwindled, she realized she would soon be out of a job. In 2004, she joined Sunbelt Atlanta, using her ample experience selling companies. She left the company to pursue other interests until it was time for the owner of Sunbelt Atlanta to retire, and she returned and bought the company. 

The professionals working at Sunbelt have all owned companies and know what it takes to own and run a business successfully. They also understand what is needed when it is time to sell. Sunbelt Business Brokers Atlanta focuses solely on the sell side of things.

The company primarily operates in the Georgia area and the Southeast. However, they possess industry expertise and will stretch their availability across the country if needed.

LISTEN TO THE INTERVIEW Today

How Does the Current Business Atmosphere Compare with Pre-Pandemic

Pre-pandemic private equity firms were flush with cash and ready to buy. If they don't put their client's money to work, the client may pull it out and go elsewhere. These companies had a lot of money on the sidelines, but when the pandemic hit, they slowed down and took the time to shore things up before making any moves.

Sunbelt Atlanta pulled some companies back off the market as it was not a great time to sell. The pace has picked up since the pandemic, and many more buyers are ready to purchase. Multiples are still very strong for selling a business, so it's an excellent time for buyers and sellers.

How to Determine the Value of a Distribution Company

The valuation of a distribution company is based on cash flow, like many other industries. The multiples increase based on the size of the distribution company and the types of products you distribute. Another factor that comes into play is your channels of distribution. For example, if a distribution company has exclusive rights to a specific product, that can increase its value.

If you are really diversified in your distribution channels, if you are distributing products across the country, have a substantial footprint, or sell internationally, that can also increase value.

Some companies are distributing products through other platforms, like Amazon, which can impact value. A lot goes into it. Multiples will vary based on many factors, such as size, diversification, exclusivity, and proprietary intellectual property.

How Does Sunbelt Atlanta Operate?

Sunbelt Atlanta never charges any upfront retainer fees. They are large enough to have that luxury and they sit on the same side of the table with their clients until the business sells. They don't earn any money if the business does not sell. Their fees are based entirely on performance.

The company performs a lot of due diligence to ensure the success of every transaction. A lot goes into it. They meet with clients and first perform an opinion of value. A seller may not know if it's time to sell if they don't know how much their business is worth.

After the valuation process, Sunbelt Business Brokers sits down with the client and helps them plan; sometimes, it is a 2-3 year process. The business may not be ready to sell, so they wait until the time is right or put them in touch with a financial planner. The financial planner can help the seller determine if selling the business will meet all their financial needs for retirement.

When they take a company to market, they spend a great deal of time researching the industry and looking into potential buyers. They find out what type of buyer is out there, what they are paying, and why they want to buy into that industry. Sunbelt takes an aggressive targeted approach to find the right buyer for your business.

How to Determine the Tire Kickers vs. Serious Buyers

Part of going to market involves thoroughly screening buyers to ensure they are qualified. One reason is confidentiality; you do not want anyone to find out about the sale until it is finalized.

Sunbelt Atlanta only shares what the company is and what the company does with potential buyers. They do not supply any details that would violate confidentiality. Potential buyers must sign an NDA before they can get any detailed information. They also must submit a resume and financial statements to prove they have the capital resources to purchase. Sometimes they must also supply an acquisition history. Sunbelt wants to ensure the buyer's background is a good fit and that they are experienced and qualified to run the business. Then and only then is the full information about your company released to them.

The process is detailed and thorough. Typically, Sunbelt only has 1-3 buyer/seller meetings before they have at least one offer.

Predictions About Valuations of Distribution Companies Over the Next Few Years

There is still a lot of demand for good companies out there. Many companies are still growing and sitting on a lot of cash to expand. Although we are heading into a recession and sellers tend to think that it is a bad time to sell, there is still a large buyer pool and fewer companies to choose from, which drives up the multiples and increases the value of those companies that are selling.

Values should hold steady even with higher interest rates for the next few years.

Why Selling it Yourself Doesn't Work

Often sellers believe that they know their business better than anyone and want to save the broker's fees by selling the company themselves. However, selling a distribution company yourself is a big mistake.

Often your business is your largest asset. You wouldn't sell a home yourself, so why sell your company on your own? There is a lot to selling a company, and if you try it on your own, one of the biggest things you will lose is confidentiality. You are the one answering the phone to talk to prospective buyers.

Some sellers think it will be easy because they already have an interested buyer. Sunbelt Atlanta levels the playing field and gets you fair market value by piquing the interest of multiple buyers. Often a large company buyer will ask questions then disappear and do this on and off a few times, wasting months of your time, wearing you down, and working off their timeline, not yours. By the time they are ready to buy, there may be fluctuations in the market, and they may offer you far less than initially planned. You could lose a potentially better deal if you deal exclusively with one buyer.

Sunbelt Atlanta sells businesses on average within 5-7 months from start to finish. Check out their website to view closed deals, how long the sale was on the market, how many offers, and did the business sell at full price. Contact them today if you want to learn more about how Sunbelt Business Brokers can help you.