Many founders are surprised to learn that once outside investors are involved, selling the company is no longer solely their decision. Boards play a pivotal role in responding to unsolicited M&A offers, and their responsibilities are guided by key legal principles.

Evaluating Letters of Intent (LOIs) is a critical step in any sell-side M&A process. For sellers, choosing the right bidder can set the tone for the rest of the transaction, especially since most buyers will request exclusivity.

The lower middle market operates under a unique set of dynamics compared to the middle and public markets. While large transactions often prioritize price, terms, closing certainty, and fit—in that order—the priorities in lower middle market transactions are distinctly different.

M&A deals can feel a lot like assembling a complex puzzle. It all begins with strategic planning for buyers: defining goals, finding the right opportunities, and then analyzing financials, tax history, legal issues, and technical operations of potential targets.

Valuation multiples can vary significantly between small businesses and those in the lower middle market (LMM). But what defines the line between the two?

In our previous post, we discussed some of the basic, factual questions that a seller should be ready to answer during an M&A management meeting—topics often covered by the Confidential Information Memorandum (CIM). While these questions are foundational, they are just the starting point of the conversation.

When entering an M&A process, the initial management meeting is crucial. Buyers will likely have already reviewed the Confidential Information Memorandum (CIM), but they’ll want to hear key details directly from the seller. This helps provide clarity and a deeper understanding of the business.

While many sellers dream of M&A deals arriving fully formed, prepackaged, and ready for closing, the reality is that each transaction is more like a complex puzzle—one that often doesn’t completely come together until the wire transfers hit, and sometimes not until after integration.

Knowing the right buyer type is important:

We’ve discussed this before, but it’s a topic that comes up frequently, so it’s worth revisiting: asset deals are the default structure for lower middle market (LMM) transactions, with a few exceptions. Why are they so common? Let’s break it down:

Recently, there has been more discussion around search funds from M&A experts that are a bit more sell-side oriented (for example, Nancy Fox -The Fractional Fox, Kirk Michie and Pat Linden). Search funds are a buyer category of ever-increasing importance in the the lower middle market, so understanding them as a seller is critical, as search funds are encountered in almost every M&A process.

When it comes to M&A transactions, understanding seller goals is key for buyers who want to make a compelling bid. For M&A advisors like us, managing a deal involves balancing a lot of moving pieces—especially in an auction process where competition is high. We need to dive into the details while keeping an eye on the bigger picture: our clients’ strategic goals.

Before agreeing to an earnout as a seller, it’s important to understand the broader context of how they work and their potential pitfalls. Here are some key insights:

Understanding the types of buyers active in the market is crucial for navigating today’s M&A landscape. Yesterday, ProVisors' Silicon Valley M&A group hosted Kip Wallen from SRS Acquiom, who shared insights from the 2024 Deal Terms Study. For those unfamiliar, SRS Acquiom provides valuable data on the M&A market, with a special focus on legal terms and overall trends.