Deal ready, not perfect: Experts share what security sellers need to prepare for M&A

YARMOUTH, Maine – In today’s strong M&A market, sellers don't need perfection, but they do need clean contracts, reliable financials, organized records and a business that can thrive beyond the owner, says Kelly Bond, partner and founder at Bridgepoint Advisors.

“We are at an interesting time in our industry,” she said. “We have more interested buyers than I have ever seen, and those are made up of private equity groups, family offices, strategic buyers and search funds that are coming in the industry looking for a business to run. And we have a lot of business owners looking to transition (out).”

Bond and Marc Katz, attorney-at-law at the Law Offices of Marc P. Katz, recently joined Security Systems News’ Security Insights webcast, “Don't Wait for Perfect: The Details That Make Security Sellers Deal Ready,” to discuss buyer expectations and what makes a seller successful.

Understand your business

Business owners should embrace the idea that they are never going to be perfectly ready to make a sale, says Katz.

“You've got to make sure you understand your business and you understand your financials, but it's never perfect,” he said. “And so I think as long as you can explain your business, as long as you can talk about your business, as long as you understand who your customers are and things of that nature, you can go to market.”

Scrutinize your contracts

In particular, buyers are going to look at your contracts, says Katz.

“Buyers are going to need to understand and you need to understand your contracts,” he said. “For example, have you looked at your vendor contracts in a while? Have you looked at your monitoring center contracts for a while? Those change over time.”

Take a deep dive

While it’s no surprise that sellers should review financials, in larger deals, especially those with a private equity buyer, they are going to go through what's called a Quality of Earnings report, says Katz.

“A Quality of Earnings is a deep dive into your financials, and you need to be able to explain your financials,” he said. “You need to be able to describe what might be able to add back to you, to the purchase, to your financials, to your earnings, so that you can get a better deal. But you need to understand those financials.”

Have a backup team

In an industry that is 85% mom-and-pops, it’s not uncommon for business owners to wear a lot of hats, says Bond. Preparing to ease that transition is key.

“They have the tribal knowledge of the whole business, and for them just to be able to leave after the closing is really unrealistic,” she said.

For example, if the owner does a lot of the sales, it's probably a good time to start transitioning some of those responsibilities away because that's one of the hardest things to replace, says Bond.

“In a lot of cases, you're just going to have to be flexible when you go to sell,” she said. “You plan your exit timing based on when you really would like to be finished. And then even maybe consider being available in a consultative manner following that because you want that sale to be successful.”