A typical sale process takes six to nine months after hiring a mergers and acquisitions specialist; however, the preparation phase can take years. Simplifying the shareholder structure, improving record-keeping, standardizing processes and procedures and establishing recurring revenue streams can all help maximize the value of the business. Understanding what is involved in this phase allows advisors to help clients prepare.

Here are the highlights of a sale we completed for a heating, ventilation and air conditioning (HVAC) contracting company, based in the Atlantic provinces, where the owner took many of the right steps prior to selling.

The situation

The company’s owner passed away unexpectedly and, as a result, his son, Graeme (not his real name), was called home from the West Coast to take over the business.

Graeme wasn’t terribly interested in the business but realized it was the family nest egg and that he had a duty to deal with the matter. Once he arrived home, he discovered things weren’t great at the company. There was a complicated shareholder structure that resulted from previous acquisitions and shareholder buyouts. His mother owned preferred shares, as did an ornery minority shareholder/partner of his father’s who was not contributing much time or effort to the business.

To his credit, Graeme spent several years after his father’s death preparing the company for sale. He reorganized and simplified the capital structure of the balance sheet and bought out both his mother and the minority shareholder. He then worked on the operations of the business.

By the time Graeme was finished, the receivables and payables operated like clockwork; there were numerous procedure manuals for the technicians; and the HR records, processes and policies were all documented and current. He established a GPS-based tracking system for his fleet of trucks and a sophisticated scheduling and remote data input system for his employees who mostly worked on the road.

Most importantly, Graeme changed the focus of the business from a bid/spec company, which bid on new HVAC installations for building contractors, to a more service-oriented business. He developed a list of annual maintenance customers who received two to 12 visits per year. The beauty of this strategic change is that he now had steady, dependable revenue and all repairs and upgrades were automatically undertaken by his technicians. He turned the business into a recurring revenue business and, by doing so, increased the value of the company by millions of dollars.

The process

We called Graeme to tell him we were aware of a company in Ontario that was looking to purchase a business in Atlantic Canada. He said that sounded interesting but that he would rather we represent him in managing the sale process, which would include contacting all eligible prospective buyers. He wasn’t shy to say that he didn’t want to remain in the HVAC business for the rest of his life. In fact, he had been preparing to sell for the past four years.

Graeme had documentation, such as signed contracts with each customer, that most small and medium-sized companies don’t bother to formalize. This was almost unheard of in regional HVAC companies. Because the company was so organized, we prepared the Confidential Information Memorandum (CIM) in record time. And since he had structured his customer contracts to provide recurring revenue, the interest in the business was unprecedented.

We found interested buyers from coast to coast, with the bulk of the interest coming from large Toronto-based companies.

The due diligence process was rigorous. The eventual potential buyer left no stone unturned. Graeme was patient and able to deliver all sorts of documentation and information that most SMEs would struggle to produce.

Unfortunately, the buyer also tried to renegotiate some of the terms and conditions outlined in the letter of intent and added a surprise customer retention clause. But Graeme was confident in his business and agreed to the new terms. And as it turned out, despite some working capital adjustment disputes, he ended up receiving 95% of what we had originally discussed and was very pleased with the result.

The advisor’s role

A client prepared for a sale will not only expedite the process but also maximize the value of their business. Advisors can guide clients in the right direction by encouraging them to have their books in order and their shareholder structures simplified before putting their businesses up for sale.

They can also send clients online resources and introduce them to an experienced mergers and acquisitions specialist. Once the sale is completed, the advisor will have the benefit of managing the proceeds of the sale according to the client’s objectives. In this situation it was several millions of dollars.

Mark Groulx is the president and founder of AIM Group Canada, a Toronto-based mergers and acquisitions advisory firm specializing in the sale of privately owned businesses. Reach him at