The process for buying and selling a private home building company follows a similar format to mergers and acquisitions (M&A) in other industries. In our experience, it typically takes six months from the time an owner decides to sell the business until the day the transaction closes.
How Long Does It Take to Sell a Business?
Three factors could affect how long this process takes:
- Organization. The more organized you are, the faster and smoother the sale will go. In this sense, the seller controls the timeline.
- Size. The bigger the company, the longer the sales process will take. Each community and asset in your portfolio requires diligence, legal paperwork, and closing documents.
- Buyer. Who is buying your company? Certain buyers take longer than others to get to closing. For example, Japanese companies tend to take longer than American companies in their M&A process.
Steps in the M&A Process
The M&A process can be broken down into three stages:
1. Deal Prep for M&A
Valuation and deal preparation in the M&A process takes about 45 days total. During that period, you as the seller have some work to do, such as providing detailed corporate and asset financial histories and projections. If you’ve hired an advisor, they will perform a financial valuation, then discuss with you the valuation range and terms you can expect to receive.
You also need to prepare key information about the assets that will be presented to bidders, who will then use that data to evaluate your business and populate their own cash flow and valuation models.
At our advisory firm, we urge sellers to disclose everything … including the good, the bad, and the ugly. Providing potential buyers with a complete understanding of the opportunities, risks, and upsides for each community in your portfolio pays off in the long run. The goal is to educate potential bidders on each asset and your company in order to minimize, or eliminate, the discount they apply for the “unknown.”
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Providing a complete profile of each asset and the company on the front end reduces the opportunities for a buyer to attempt to re-trade the deal during diligence because they thought they were buying one thing and ended up with something else. And, most importantly, it avoids wasting people’s time.
At the end of the deal preparation phase, you will have a package of offering documents you can provide to potential buyers.
2. Marketing
The marketing and bidding phase typically takes 45 to 60 days. During that period, advisors like us reach out to the universe of potential buyers. After potential buyers sign nondisclosure agreements, your advisor will distribute your offering documents, coordinate calls with your ownership team, arrange site visits, manage the bidding process, and collect bids. You will evaluate the bids, negotiate price and major deal terms, eventually select a “winner,” and then enter into a non-binding letter of intent (LOI).
3. Diligence and Closing
The next 90 days are devoted to the buyer's due diligence, negotiating a definitive purchase and sale agreement, preparing for closing, and eventually closing the transaction. As a deal moves from a letter of intent to a definitive agreement, real estate attorneys and title companies take on the final workload to close the sale.
Based on our experience, we suggest sellers strive to minimize the time between signing the LOI and closing. The longer diligence lasts, the greater the chance that deal fatigue sets in and the more exposure you as the seller have to changes in market conditions.
For these reasons, we strongly push sellers to invest time and energy in the front-end deal prep stage so all of the diligence information is available and complete throughout the M&A process, which helps to facilitate a successful transaction for all parties in the deal.
Chris Jasinski is managing partner and co-founder of JTW Advisors, a mergers and acquisitions advisory firm focused exclusively on the home building industry. He may be reached at chris@jtwadvisors.com.
Ken McWilliams is SVP of research at JTW Advisors. Reach him at ken@jtwadvisors.com.
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