John Golden:

All right, hello and welcome to another Expert Insight interview. My name is John Golden from SalesPop online sales magazine and Pipeliner CRM, joining you as usual from a sunny San Diego. Today, I'm delighted to be joined by Scott Weavil, who's just up the state a little bit in Lake Tahoe.

Scott Weavil:

I'm doing excellent. Thanks for having me so much, John.

John:

Scott is the founder of Sierra Pacific Partners, a lower middle-market investment bank focused on sell-side mergers and acquisitions advisory services. They function like a real estate agent but in the complex world of selling businesses rather than buildings. What we're going to talk about today is how to sell your lower middle-market business. So Scott, obviously when you're considering selling a business of any size, there are many things to consider. What advice would you give to someone with a lower middle-market business who is thinking of selling?

Scott:

For sure. I think the further out you can start to prepare, the better—that's always the case. A lot of times when folks come to me, I don’t really assist so much with the preparation as with the actual transaction. There’s a whole industry of exit planners who assist with preparing your business for sale before the transaction gets turned over to someone like me.

But I talk to sellers every day, and I can tell you that some of the most important things buyers look for are clean financials. If you can get your financials as close to GAAP (Generally Accepted Accounting Principles) as possible, that looks good. And, since this is a sales podcast, I’ll add that growing sales, which leads to growing earnings, is definitely important for buyers—although there are exceptions.

A third big thing is a lack of dependency on the seller. If the seller has all the key customer relationships, that’s very scary to a buyer because they’ll wonder, "When the seller leaves, what will happen?" Another thing is customer concentration. If your revenue stream depends on just a few customers, that’s a risk to the buyer.

John:

That’s a really good point—making sure you’re selling a business, not just your personal relationships with customers. When people come to you to sell their business, what are buyers finding attractive in today’s market?

Scott:

There’s always private equity funds who are huge buyers, even in the lower middle-market space, which is fantastic. Historically, businesses in this space were too small for large corporate strategic acquisitions, but too big for individual buyers. Private equity has filled that gap.

In terms of industries, it’s hard to anticipate trends, but certain hallmarks, like recurring revenue models, are always attractive. That’s why buyers love SaaS businesses, for instance—it de-risks customer revenue, especially if it’s contracted.

John:

And it’s not just about finding a buyer and agreeing on a price, right? There are different ways to structure deals. Could you explain some of the different deal structures?

Scott:

Absolutely. Generally speaking, when we talk about M&A (Mergers and Acquisitions), we’re talking about selling a business. The two main structures are equity transactions, where the buyer purchases the company’s stock, and asset deals, where the buyer purchases the company’s assets (not to be confused with an asset sale, which implies liquidation).

Another thing to consider is rollover equity, where the seller retains an equity stake in the business post-closing. This is typically done when the seller is staying involved in management. Earn-outs are another common feature, where the seller gets paid more if certain milestones are hit post-closing.

John:

That’s great advice. Now, let’s talk about preparing sellers. Selling a business can be an emotional experience, especially when they’ve poured years of effort into it. How do you prepare sellers for the reality that buyers may not see things the same way?

Scott:

It’s definitely emotional. I use the metaphor of an “ugly baby”—it’s not that the buyer is calling the baby ugly, but they need to understand the business fully, both to determine the price and to figure out what they might need to work on after the purchase. Sellers have to be prepared for changes post-sale, like losing a lease on a building they love or seeing a long-time employee leave.

Our role as intermediaries is to manage the conversation between the buyer and the seller. Most buyers don’t want to offend the seller—they want the seller's support post-closing.

John:

What should sellers consider before getting into the process with you?

Scott:

A lot of it is driven by financials. One of the first things I do when I see a good fit is ask for financials to get a sense of the valuation. A big mistake we see is sellers coming in with unrealistic valuations—often based on stories they’ve heard at the country club. We also emphasize the importance of confidentiality throughout the process.

Generating competition for the business is important too. Even if you know a good buyer, having multiple offers can help push the process forward.

John:

Valuation is often what gets people the most anxious. How do you help them understand their valuation?

Scott:

There are four mainstream ways to value a business, but the one most people know is the multiple method. This compares the purchase price to a key metric, usually EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Some industries use revenue, like SaaS companies, but for most, EBITDA is the default.

John:

And how do you keep sellers focused on the realistic valuation range?

Scott:

Before we move too far down the road, we align on the valuation. If the seller’s expectations are far off from the market’s view, we address that early on. Strategic buyers may pay more, but typically, if they’re willing to pay significantly more, they’ve probably already reached out to you.

John:

Why now? What motivates sellers to act?

Scott:

It varies. Retirement is common, as is the need for private equity funds to exit after a certain period. But buyers want to know why you’re selling to make sure you’re not planning to compete with them post-sale.

John:

Finally, why is it important to work with someone like you, rather than selling the business directly?

Scott:

It’s a complex process. We know what’s normal, what’s expected, and how to manage the process confidentially. Most importantly, we keep the momentum going, helping with negotiations and driving the deal forward while you continue to focus on running your business.

John:

This has been fantastic. Scott, before we wrap up, tell us a bit more about Sierra Pacific Partners and who your ideal clients are.

Scott:

I founded Sierra Pacific Partners after working as a Wall Street M&A lawyer. Today, we help lower middle-market companies, typically those with $10-$150 million in revenue, across various industries. We’re licensed nationwide, and I love talking to sellers about how we can help.