Managing the Sale Process:
When It’s Time to Sell Your Restaurant Business, Hire an Investment Banker, Not a Broker.

What’s the Difference?

The Broker introduces you to the buyer and then largely sits on the sidelines waiting to collect his commission check. The Banker is the quarterback of the team who brings a wealth of knowledge and experience to the game, is intricately involved in all facets of the transaction and is responsible for orchestrating and driving the team down field and across the goal line.

Choosing the Right Team to Represent You

When selling your business, choosing the right team to represent you is among the most important decisions you will make in your professional career. The process of selling your business is going to be expensive, time consuming and stressful. You need to hire someone you are comfortable working closely with for an extended period of time. You need more than a charming salesman to maximize value and minimize risk. You need an expert in the field. There is no room for a generalist. Learning on the job may help the next guy, but it’s of no use to you.

Choosing the Right Banker

Interview Multiple Candidates – We Recommend at Least Three.

A Note on Fees: The fee is an important consideration, but it is only one of many and not the most important.

Check references: Your banker must be able to provide you with a roster of clients that will confirm that what was promised was delivered.

Understand who’s on the banker’s team: Depth and breadth of experience is critical. A one-man band or a weak and inexperienced support team typically translates into sub-optimal results.

Ask to see marketing materials from previous deals: Nice pictures of beautiful new restaurants and juicy hamburgers are fun to look at but how important are they really to getting your business sold?

Ask to see redacted examples of the financial analysis and valuation from previous deals: The numbers ultimately drive the deal and an effective representative must know his/her numbers.

Beware of the refrain: “I can get you 8 times”: You need to ask the question: “8 times what?” The EBITDA multiple the broker is promising is only half of the equation. A good banker will focus your attention on optimizing cash flow. The market determines the multiple.

Taxes matter…a lot!: Gross dollars are fun to talk about, but net after-tax dollars are what shows up in your bank account. A good banker will spend the time at the front end of the process working with your CPA to figure out the tax math and develop strategies to minimize the tax impact so that you’re not surprised on April 15.

A Note on Price: Price is obviously very important, but it is hardly the only critical factor. “Win on price but lose on terms” is often the outcome for a poorly represented seller.

The franchisor approval process can often be a bear. The banker should have extensive experience navigating through that process. The sale process will take at least six months. Anyone that tells you differently isn’t telling you the truth. Don’t be in a hurry or you won’t get the best deal.

Make sure there is a personality fit with the banker. The sale process is intense, time consuming and stressful. You need some one that you can trust and work closely with in that kind of environment.

The Sale Process is Complicated

Historical financial analysis, pro forma adjustments, franchise agreement review, lease review, capex mandates, brand trajectory, commodity cost trends, local wage rates, hold or sell the real estate, valuation, auction or targeted offering, teaser, bid instruction letter, first round bidders, second round bidders, best and final, automated data room management, LOI, APA, title, survey, phase 1, phase 2, lease assignment, franchisor approval, assignment of contracts, representations and warranties, indemnity basket-first dollar or tipping, escrow or seller personal guaranty, weekly update calls.

And then there are the lawyers. Don’t get me started on the lawyers. Seller’s lawyer, Buyer’s lawyer, franchisee lawyers, real estate lawyers, landlords’ lawyers, bank’s lawyer, franchisor’s lawyer. Negotiating the asset purchase agreement is the banker’s job, not the lawyer’s. Obviously, there is a lot of legal crap in the APA so you need a good lawyer, but at the end of the day, this is, first and foremost, a business deal. The lawyers should not drive the business deal, they should document it.

To “win” the APA process you need the support of an experienced, creative problem solver who is a poised and skilled negotiator.

Final Thoughts

The sale of your business is typically the culmination of your professional career and the importance of selecting the right investment banker to represent you cannot be over emphasized.