So many content creators think millions when it comes to selling their businesses. The problem? They don’t plan for it.
Exiting your content business has everything to do with planning now. Here’s how to do it. And if you already have a plan, you may want to revisit it after reading this step-by-step process that my wife and I did to sell our content business.@JoePulizzi shares step by step the selling process he used to sell his #ContentBusiness for 8 figures. #ExitStrategy #CreatorEconomy Click To Tweet
Get your house in order
Before you start the selling process, you have two meetings to take.
First, your attorney. What needs to happen to protect you and your family? Are there any legal issues you need to be aware of? Check through all your partnership, vendor, and employee agreements.
- Make copies of every agreement and place them in a folder (paper or digital).
- Pay your attorney to review (or re-review) all agreements to spot problem areas.
- Fix anything that needs fixing.
After the meeting with the attorney, your next stop is the accountant.
Most likely, the way you produce your financials will probably not be the way the buyer needs them for analysis purposes. This is something to keep in mind now (more on that later).
Your accountant needs to review tax implications with you. Is there a better time to sell? A better type of buyer? Make sure the accountant lays out everything so you can confirm that your final list is correct and your timing is in the ballpark.
Find a financial adviser
My best advice? Do not go through this process yourself.
Finding a financial adviser who can run point on all correspondence and negotiations. Unless your deal is expected to be for more than $50M, I recommend hiring an independent financial adviser, not a larger firm.Selling #ContentBusiness? Hire a financial adviser who can run point on all correspondence and negotiations, says @JoePulizzi. #ExitPlanning Click To Tweet
You should research this as well. About a year before we put the selling plan in action, I researched financial advisers. Besides scouring Google, I asked industry friends (in confidence) and attended event sessions on mergers and acquisitions. The adviser we chose was a CFO at a large media company and had 20 years of experience working on small acquisitions like ours. I approached him after seeing him speak at an event, and we hit it off immediately.
According to Hal Greenberg of The Riverside Company, most media businesses use what’s called the Lehman formula in compensating a financial adviser. It looks like this:
- 5% of the first $2M
- 4% of the next $2M
- 3% of the next $2M
- 2% of the next $2M
- 1% of $8M and more
Using the Lehman formula, the financial adviser fee on a $10M deal would be $300K.
For our deal, we agreed to compensate the financial adviser:
- 2% of the sale price up to $10 million (only on the upfront sale price, not on post-sale earnouts or bonuses).
- 1.5% of sale price over $10M
- Up to $300K for successful sale
- $150 per hour if no deal is made. (Our financial adviser tracked their hours.)
Finalize the list
If you have chosen wisely, your financial advisor will have some thoughts about your potential buyers’ list. (If you are wondering what goes into the list, read my explanation in this article.) Make sure your adviser reviews the list and confirms your hypotheses.
The four potential buyers on my list grew to eight after discussions with our adviser. We did a thorough analysis of each opportunity and agreed to approach those eight companies.
Create offering memorandum
After agreeing on the list, we put together the calendar, leading up to distributing the investment memorandum. It includes:
- Executive summary
- Investment highlights
- Company overview
- Financial summary
- Product offerings (list each one)
- Marketing and sales
- Growth opportunities
- Market overview
- Management and ownership
- Executive management
- Employees and contractors
Keep this document to no more than 20 pages. I agonized over our document, spending more than three months going through multiple drafts. You probably will too.
Get the nibble
For all the contacts with whom I had a direct relationship, I sent a brief email something like this:
I’m in the process of selling the Content Marketing Institute. Would you be interested in seeing the offering memorandum?
When someone said yes, I introduced our financial adviser, who removed me from the email chain and proceeded with the process.
When I did not know the main contact, our financial adviser found the correct contact and set up a quick call to discuss the opportunity.
Once we knew which parties were or were not interested, we proceeded to the next step.
Sign a nondisclosure agreement
Five of the eight companies took a closer look at our financials and asked to see the full offering memorandum. Our financial adviser received each main contact’s signature on a basic nondisclosure agreement and then emailed over the memorandum.
The financial adviser also sent over dates for our availability to answer questions, as well as the deadline for letters of intent from interested buyers.
Understand the letter of intent
Of the five interested buyers, we received two letters of intent. A letter of intent is a short, nonbinding contract that precedes a binding agreement, such as a share purchase agreement or asset purchase agreement.
A letter of intent typically includes:
- Transaction overview and structure
- Due diligence
An LOI is not binding. It is like a marriage proposal. Sure, you are serious, but you are not married yet.A letter of intent is like a marriage proposal. Sure, you are serious, but you aren't legally committed to each other, says @JoePulizzi. Click To Tweet
The first LOI was a genuinely nice package, but the purchase price was less than we wanted. I can never forget the second one.
I had just finished a workshop in New York. I had a voice mail from my financial adviser, who told me to check my email. This one was from a global events company.
I opened it. Read it. Read it again. Then I called my wife. When looking back, this was our moment, the moment when we cried and told each other, “We did it.” Financially, it was everything we could have asked for. From an operations point of view, we needed some clarifications. The company was asking for a lot in return for its investment, and rightly so.
Over the next two weeks, we went back and forth on several issues, culminating in the formal pitch meeting.
Be ready for the pitch meeting
Exactly one month after receiving the LOI, we had our first in-person meeting. My wife, our financial adviser, and I reserved a small conference room in New York City to meet two of the buyer’s senior executives. One oversaw M&A for the division, and the other ran the division where our company would go.
To prepare, I put together a presentation based on the offering memorandum and worked hard to address the concerns the buyer had raised. The meeting was intense. The buyer challenged many of our growth assumptions. It lasted about three hours, and I was exhausted when we were finished.
Get to the signed letter of intent
How silly I was to think the submitted LOI meant something. It does not. It is like Play-Doh in the can before sculpting a piece of art. It’s the signed LOI that counts. That becomes the template for building the final asset purchase agreement.
After the pitch meeting, the buyer made several requests, including all past financials, updated projections based on the meeting, sales pipeline, and organizational structure. We discovered our taxes and accounting were set up differently from the buyers.
CAVEAT: Get your accountant involved as soon as possible in the process.
Approximately seven weeks after the pitch meeting, we received and signed an amended LOI. Although the overall financial number did not change, some money was moved from the upfront payment to the earnout – money earned based on performance up to three years after the sale.
We were happy with it, but here is the truth: Count only the upfront money when selling your company. Anything could happen after the deal closes. An earnout or bonus, while great in some cases, may never materialize. My wife and I signed the deal because the upfront number met our objectives.Count only the upfront money when selling your #ContentBusiness. Earnouts and bonuses can be great, but they may never materialize, says @JoePulizzi. #CreatorEconomy Click To Tweet
Be prepared for financial hell and negotiations
The next four months were some of the worst of my life. My wife and I completed hundreds of spreadsheets and operational documents literally. I started to despise the person who invented spreadsheets. If you want to sell, especially to a global corporation as we did, be aware of what can happen and the things you must do.
Some of that year’s event registrations were tracking below pace, and the buyer was concerned. That said, all the buyer’s questions had been answered, and it was time to see the final agreement. Weeks went by. No word. No agreement. I was getting concerned.
Walking out of a meeting, I received a call from our financial adviser. He told me to sit down. Apparently, the buyer was going to send us the final agreement with some major changes. First, the buyer again reduced the upfront payment. Second, the buyer lowered the total financial deal.
I was deflated. Exhausted. Frustrated. I took down all the details from my financial adviser, ended the call, and sat in the middle of Tower City in downtown Cleveland trying to figure out what to do. After all, the ball was still in our court. We could always say no.
I called my wife and relayed the details. I told her I was thinking about canceling the deal. She said she would support whatever decision I made, even though she really wanted to sell the business.
Instead of feeling sorry for myself, I looked at this as an opportunity. If the buyer wanted to spend less money, maybe I could ask for other things in exchange for lowering the price. I started scratching out notes. I created a new plan.
I would accept the terms with provisions. First, I wanted it in writing that no person would be fired or let go without my permission while I was still with the company. Second, I was concerned about staying with the company three years after the deal was signed. If the buyer wanted to lower the deal, I wanted more freedom. I asked the buyer to cut my time from three years to 18 months. My wife would leave after six months. Third, if the buyer was going to cut the upfront payment, I wanted to accelerate the earnout. I asked for a higher percentage on the initial parts of the earnout to make us whole if we hit certain sales targets.
The buyer agreed to each updated clause. The first two (keeping the team intact and shortening my stay) were absolutely worth every penny we did not receive in the upfront payment.
Never be afraid to ask for anything. The worst that could happen is that people say no.
Notify the team
A month later, the deal was finalized. It was six months from receiving the LOI to a signed asset purchase agreement and 12 months from when we started the selling process.
Once we received the final signature, my wife and I eagerly anticipated the upfront deposit. I almost dropped the computer when I saw all the zeros in my online banking statement. When we received the money, the deal was officially done. Our bank account showed more money than I’d ever seen in one place at one time.
Now came the hardest part. My wife and I split up the calls to our team members and notified each one. Those who received a large bonus payment were ecstatic about the bonus, but they and most of the other team members were sad. They did not want to see things change. It helped that they knew the goal was always to sell, so they were not completely surprised.
Adopt a selling mindset
While there is no official time, I’ve talked to many content creators over the years, and the burnout feeling seems to come between years five and seven. Creating content full time is a ton of work. Making it successful is even more.
Even if you don’t think you could sell your business, you’re probably wrong. I’ve seen the smallest content businesses get nice six-figure offers that were a win-win for both buyer and seller.A selling mindset (even if you don't think you'll sell) focuses you on long-term strategy and profitable-growth decisions, says @JoePulizzi. #ContentBusiness Click To Tweet
Regardless, I believe the mindset of selling someday is important. It gets you focused on your long-term strategy and making decisions for revenue and profit growth, not just because it “feels right.” And the worst case is you’ve built a tremendously profitable business, and you have multiple options for yourself and your family in the future.
About the author
Joe Pulizzi is the founder of The Tilt, author of seven books including Content Inc. and co-founder of speech-therapy fundraiser, The Orange Effect Foundation.