The Complete Guide to Selling a B2B Company

Most owners sell a company once. The buyers across the table, whether corporate development teams or private equity firms, may close several deals a year and know every stage of the process well. This guide is meant to narrow that gap. It walks through the sale of a founder-owned, family-owned or sponsor-backed B2B company in the lower middle market (roughly $5 million to $150 million of revenue) from the first decision to sell through the months after closing.

The sequence below describes a typical sell-side process run by an investment bank or M&A advisor. Not every sale follows it exactly, since a negotiated sale to a single buyer compresses several steps, but the documents, decisions and failure points are broadly the same.

The sale process at a glance

A sell-side process moves through distinct phases, each with its own outputs and its own demands on the owner’s time. Owners often underestimate the hours required during preparation and diligence while still running the business, which is one reason performance sometimes slips mid-process.

Deciding to sell and choosing the moment

The decision to sell usually combines personal and business reasons: retirement, a partner who wants out, estate planning, fatigue, a growth opportunity that needs more capital than the owners want to commit, or an unsolicited offer that forces the question. Clarity about your own objectives matters before anything else, because they shape the right buyer and the right structure. An owner who wants a clean exit in six months is looking for a different deal than one who wants to roll equity and run the business for another five years.

Timing has three dimensions. The first is the company’s trajectory. Buyers price on trailing twelve-month earnings and then test the forecast, so the strongest position is a business with growing earnings and a credible plan that the current year is visibly delivering. Selling just after a down year forces you to argue for a recovery the buyer will discount. The second is the market: credit availability, interest rates and buyer appetite in your sector move multiples, though owners should not try to time the market precisely. The third is personal readiness. Sellers who have not decided what they will do afterward often stall at the LOI or closing, which is costly for everyone.

Unsolicited offers deserve a specific word of caution. A buyer that approaches you directly has done so because it sees value, and its opening price is usually set to secure exclusivity before competition appears. Engaging is reasonable; signing an exclusive LOI without testing the market usually is not.

Readiness assessment: seeing the company as a buyer will

A readiness assessment looks at the company through the lens of buyer diligence before any buyer does. The aim is to find issues while there is still time to fix them or, failing that, to disclose and frame them on your terms. Issues that surface late in diligence tend to cost far more in price or structure than the same issues disclosed upfront.

Two items come up repeatedly in B2B diligence. Sales tax exposure has grown since the 2018 Wayfair decision allowed states to impose economic nexus, and companies selling across state lines often have unfiled obligations. In California, worker classification under the ABC test introduced by AB 5 is a frequent diligence topic for companies that rely on contractors. Both are fixable, often through voluntary disclosure or reclassification, but they take time.

Assembling the deal team and choosing an advisor

A sale is a team effort. The team’s job is to protect value and keep the process on schedule while you keep running the company. Engaging specialists early is cheaper than repairing structure or tax mistakes after an LOI is signed.

When choosing an advisor, the questions that matter most are practical ones.

• Who will actually do the work day to day, and how many active processes are they running?
• Have they sold companies of your size and sector, and to which kinds of buyers?
• How will they build the buyer list, and how will they reach owners and buyers who are not already in their network?
• How is the fee structured, and does it reward a higher price or simply any close?
• What is the tail period (how long after termination a fee is owed on a deal with a buyer they introduced)?
• Can they provide references from sellers whose deals closed, and from one whose deal did not?

M&A counsel should be a transaction specialist, not your general corporate lawyer, unless that lawyer does deal work regularly. Purchase agreement terms such as indemnification baskets, survival periods and working capital definitions carry real money, and experience with market terms is what you are paying for.

Preparation: financials, quality of earnings and the data room

Adjusted EBITDA

Most lower middle market companies are valued on a multiple of adjusted EBITDA, meaning reported EBITDA normalized for items that will not continue under new ownership. Typical adjustments include owner compensation above or below market, personal expenses run through the business, one-time legal or consulting costs, and related-party rent set off-market. Each adjustment must be documented. Buyers and their accountants will test every one, and adjustments that cannot be supported are removed, with the multiple applied to the lower figure.

Sell-side quality of earnings

A sell-side quality of earnings (QoE) report is an independent accounting review of adjusted EBITDA, revenue quality and net working capital. It is not an audit, but it anticipates the buyer’s own QoE. Commissioning one before marketing lets you find problems early, gives buyers confidence in the numbers they bid on, and shortens confirmatory diligence. For lower middle market companies the cost often runs from the tens of thousands to the low hundreds of thousands of dollars depending on complexity, which is usually small relative to the price reductions it can prevent.

The data room

A virtual data room holds the documents buyers review in diligence. Building it before launch, rather than in response to a buyer’s request list, keeps diligence moving and avoids the impression that the company is disorganized. A standard index covers corporate records, financials and tax returns, customer and supplier contracts, employees and benefits, real estate, IP, insurance, litigation and regulatory matters. Sensitive items such as customer names and pricing are typically released in stages, with the most sensitive held until a buyer is under LOI.

Positioning, the teaser and the CIM

Positioning is the argument for why the company is worth more to a buyer than its current earnings alone suggest. It rests on a small number of investment highlights: recurring or repeat revenue, durable customer relationships, a defensible niche, a capable team, margin trends and specific growth paths a buyer can fund. Good positioning is factual and specific. Buyers discount adjectives and pay for evidence.

The confidential information memorandum (CIM) is the main marketing document, usually 30 to 60 pages, covering the business model, customers, operations, team, historical financials, the adjusted EBITDA bridge and the forecast. It should anticipate the questions a buyer’s investment committee will ask and answer the difficult ones directly. A customer concentration issue explained in the CIM with supporting contract and tenure data reads very differently from the same issue discovered by a buyer’s analyst.

Building the buyer universe and choosing a process

The buyer list is where the price is ultimately set, because a competitive outcome depends on reaching the buyers with the best strategic or financial reason to pay. A lower middle market list typically includes several categories.

• Strategic acquirers: operating companies, public or private, seeking customers, products, capabilities or geography.
• Private equity platforms: funds buying a first company in a sector, usually requiring a capable management team that will stay.
• Private equity add-ons: portfolio companies of funds seeking bolt-on acquisitions, often able to pay more because of synergies and the multiple their platform will eventually sell at.
• Family offices and holding companies: often longer holding periods and more flexible structures.
• Independent sponsors and search funds: individual investors raising capital deal by deal, more common at the smaller end.
• Management or an ESOP: internal buyers who know the business, usually needing seller financing or leverage.

A well-built list goes beyond the obvious names. Adjacent-market companies, foreign strategics entering the US, and portfolio companies of funds that have not yet been active in your sector often produce the most motivated bids. List sizes vary widely, from a dozen carefully chosen parties to a few hundred.

A targeted process is the most common choice in the lower middle market. Sellers often worry most about confidentiality: employees, customers and competitors learning about the sale. A controlled process manages that risk through blind teasers, NDAs, staged disclosure and limits on contact with employees and customers, rather than by talking to only one buyer.

Going to market: outreach, IOIs and management meetings

The advisor contacts buyers with the teaser, executes NDAs, and releases the CIM. Over four to eight weeks, interested buyers review materials and ask questions through the advisor. A process letter then asks for indications of interest (IOIs) by a set date.

An IOI is a non-binding letter with a valuation range and the basis for it. A useful IOI states the enterprise value range, the EBITDA figure it assumes, the form of consideration (cash, rollover equity, seller note, earnout), financing sources, key diligence items, required approvals and expected timing. Comparing IOIs on these terms, not just the top of the range, identifies the buyers worth advancing. Sellers typically invite somewhere between four and eight parties to the second round.

Management meetings are where buyers decide whether they believe the plan. They usually include a two- to three-hour presentation by the owner and key managers, followed by questions and often a site visit. Buyers are assessing the team as much as the numbers, especially private equity buyers who will rely on management after closing. Rehearse the presentation, know the financials in detail, and agree in advance which questions go to which person. After meetings, buyers receive additional data room access and submit final bids or LOIs.

The letter of intent

The LOI sets out price and key terms and grants the buyer exclusivity, usually for 45 to 90 days. Although most of it is non-binding, it defines the deal; terms not addressed in the LOI tend to be settled on the buyer’s terms later, when the seller has no competitive alternative.

A seller’s leverage is highest the day before the LOI is signed and declines through each day of exclusivity.

• Enterprise value and the basis (cash-free, debt-free is standard).
• Consideration mix: cash at close, rollover equity, seller note, earnout, and the terms of each.
• Net working capital target (the peg) and how it will be calculated.
• Indemnification approach: escrow size, caps, and whether representations and warranties insurance (RWI) will be used.
• Treatment of key employees and the seller’s post-close role and compensation.
• Financing: committed or not, and whether there is a financing condition.
• Exclusivity length and conditions to closing.

Confirmatory diligence and the purchase agreement

During exclusivity the buyer runs confirmatory diligence: its own quality of earnings, legal, tax, insurance, IT and HR reviews, environmental for industrial sites, and often customer calls near the end. Request lists can run to several hundred items. A sell-side QoE and a prepared data room shorten this phase; the advisor’s job is to keep the buyer on schedule and prevent diligence from turning into a renegotiation.

In parallel, counsel negotiates the purchase agreement, either a stock purchase agreement (SPA) or an asset purchase agreement (APA). The main points of negotiation are:

• Representations and warranties: statements about the business that the seller stands behind, qualified by disclosure schedules listing exceptions.
• Indemnification: the deductible or basket, the cap, survival periods, and carve-outs for fundamental representations and fraud.
• Purchase price adjustment: definitions of cash, debt, transaction expenses and net working capital, and the dispute process.
• Covenants: conduct of business before closing, non-competition and non-solicitation after.
• Closing conditions: third-party consents, regulatory approvals, key employee agreements.

RWI has become common in private equity deals and increasingly in strategic ones above a modest size. The buyer’s policy covers most breaches of representations, which lets the seller’s indemnity escrow shrink substantially. Without RWI, indemnity escrows commonly fall in the high single digits to low teens as a percentage of purchase price; with RWI, the seller’s exposure is often limited to a fraction of the policy retention.

Larger transactions may require a Hart-Scott-Rodino filing with the FTC and DOJ when the deal exceeds the annually adjusted size-of-transaction threshold, which adds a waiting period of at least 30 days. Most lower middle market deals fall below it, but counsel should confirm early.

Closing, the funds flow and the transition

Most lower middle market deals sign and close on the same day, or within a few days, unless regulatory approvals or third-party consents require a gap. In the final week, counsel finalizes the closing checklist: payoff letters from lenders, lien releases, the escrow agreement, officer certificates, resignations, employment agreements and the funds flow memorandum, which lists every wire with amounts and bank details.

Wire fraud is a real closing risk. Confirm all wire instructions by telephone using a number from an independent source, never from the email that contained the instructions, and treat any last-minute change to bank details as suspect.

In this example the seller receives about 85% of the headline price at closing, before taxes, with most of the escrows released later if no claims arise. Adding an earnout or rollover would move more of the value into the future. Running a version of this table at the IOI stage, for each bid, is the simplest way to compare offers on a like-for-like basis.

After closing: true-ups, escrows and earnouts

Closing is not the end of the seller’s obligations. Within roughly 60 to 120 days, the buyer prepares a closing statement with actual working capital, cash and debt, and the price moves up or down against the estimate; disputes go to an independent accountant under the agreement’s procedures. Escrows release on the schedule set in the purchase agreement, commonly 12 to 24 months for indemnity escrows.

Most sellers stay for a transition period, from a few months of consulting to multi-year employment where the seller rolled equity or has an earnout. Earnouts deserve particular care: define the metric precisely, specify how the buyer must operate the business during the earnout period, and agree on access to information and dispute resolution. Ambiguous earnout terms are a frequent source of post-closing disputes.

Non-competition covenants are standard for selling owners. California generally voids non-compete agreements, but its Business and Professions Code includes an exception for a person selling the goodwill of a business or all of their ownership interest, so reasonable sale-of-business non-competes are generally enforceable there. Their scope and duration should still be reviewed carefully with counsel.

Why deals fail and how to prevent it

Deals rarely fail for one dramatic reason. More often, a series of small problems erodes trust and price until one side walks away. Nearly all of the common causes can be anticipated.

A recurring pattern is the re-trade: a buyer under exclusivity uses a diligence finding to lower the price. Some re-trades are justified by genuine new information. Sellers reduce their exposure by disclosing issues before the LOI, by keeping at least one credible alternative buyer warm where the process allows, and by holding the business to its forecast through closing.

How Laurent Capital helps

Laurent Capital advises owners of lower middle market B2B companies on sell-side processes from readiness through closing. Our sourcing platform maps the buyer universe for each engagement and refreshes coverage daily, so the list reflects who is actively acquiring now rather than who was active last year. Our fees are results-based. If you are considering a sale in the next few years, a confidential conversation about readiness and timing is a reasonable place to start.