In Deal Note® 15, we highlighted a few of the biggest mistakes sellers make in the middle market of the aerospace and defense industry (trying to time the market and insufficient preparation). In today’s Deal Note®, we present a few more mistakes and how to avoid them.
EBITDA Addbacks
It is tempting to include every imaginable add-back in an effort to make your earnings look higher. But when buyers see add-backs that they find not credible, they often walk from a deal because they don’t have time for these kinds of sellers.’
Fix: Focus on clear, well-documented, defensible addbacks. Having a Quality of Earnings Report (QofE), prepared by a highly respected accounting firm, is an excellent solution for this.
Customer Concentration
As mentioned in Deal Note® 12, customer concentration is common in A&D. Buyers will identify these issues soon enough when they start their due diligence.
Fix: Acknowledge it early in the sale process (in the CIM), so you control the narrative.
Time Commitment
As mentioned in Deal Note® 112, when done optimally, a sales process takes a substantial amount of time. As a founder/owner, sometimes it can feel like having two jobs at once. Sellers who do not allocate substantial time to preparing for and effectuating the sale will cause delays in the process, frustration for the buyers, and most likely, a lower price for their business in the end.
Fix: Make time for this process. While your bankers, lawyers, and accountants can do a lot of this work, you will need to be actively involved. Once the process starts, plan to spend substantial time dedicated to the sale process.
The above are just a few more of the lessons we have learned about selling middle-market aerospace and defense companies over the past 24 years. More to come next week and the weeks after.
Have a great day,
Max McFarland
Associate
