Your company has no ticker symbol. No exchange quotes it, no analyst covers it, and on the day you decide to sell, there is no bid. The market for a private company does not exist until someone builds it, and the sale process is the machinery that builds it: a structured sequence that turns one illiquid asset and a list of names into competing offers, a signed agreement, and a wire. Run well, the process manufactures the competitive tension that Chapter 7 argued is what actually sets the price. Run poorly, it burns confidentiality, exhausts the management team, and delivers the owner to the final negotiation with no alternatives and less standing than the day it began.
This chapter walks the process from the owner’s chair, stage by stage, with the durations we typically see in lower-middle-market deals. Acquirers run the same track from the other direction; Chapter 16 covers their playbook.
Three Ways to Go to Market
Every process design is a tradeoff among three things owners want simultaneously: competition, confidentiality, and speed. You can optimize for two.
A broad auction contacts a wide universe, commonly 100-250 parties, on a fixed timetable with staged information and hard deadlines. It maximizes the odds of finding the outlier acquirer, the one whose strategic math nobody predicted. It also costs the most in confidentiality exposure and management attention. It suits companies with broad appeal, no single obvious acquirer, and an owner whose first priority is price.
A targeted process approaches a curated list, commonly 30-75 names the advisor believes have genuine strategic or thesis fit. This is the lower-middle-market workhorse: enough competition to price the asset honestly, controlled enough to manage leaks and workload. Most of the funnel arithmetic later in this chapter describes processes in this family or slightly broader.
A negotiated one-off is a single-counterparty deal, usually born from an inbound approach: an acquirer calls the owner directly, a relationship already exists, or a competitor makes an offer too specific to ignore. It is the fastest and quietest path, and usually the most expensive one for the owner. The acquirer chose the timing, knows nobody else is at the table, and prices accordingly. “We already have a buyer” is among the most costly sentences owners say, not because negotiated deals never make sense, but because a price with no market check is a price set by the counterparty. As Chapter 7 argued, competition matters most as credible optionality: an owner with real alternatives prices and papers better even in a negotiated deal. So the practical middle path, when an attractive inbound offer arrives, is a quiet and compressed market check: an advisor discreetly testing a handful of logical alternatives so the single bidder is no longer bidding against nobody.
The tradeoffs compress into a simple grid.
| Process type | Parties contacted | Competitive tension | Confidentiality risk | Best suited for |
|---|---|---|---|---|
| Broad auction | 100-250 | Highest | Highest | Broad-appeal companies, price-first owners |
| Targeted process | 30-75 | High | Moderate | Most LMM companies |
| Negotiated one-off | 1 | Lowest | Lowest | Preemptive full-price offers, unique strategic fits |
Sometimes, though, the negotiated deal is right. A preemptive offer at the top of any defensible valuation range, from the obvious strategic acquirer, with real certainty of close and a confidentiality situation that makes a process genuinely dangerous, can beat an auction on a risk-adjusted basis. Even then, what keeps that offer honest is the acquirer’s belief that you can and will run a process if they misbehave.
The Process, Stage by Stage
From signed engagement letter to funds flow, a lower-middle-market sale commonly takes 6-12 months. The stage durations below are typical, not promises: strong preparation compresses them, and surprises stretch them. As the timeline below shows, much of the work front-loads before any acquirer sees the company’s name.
Preparation and Materials: Typically 6-10 Weeks
Four assets come out of this stage: the teaser, the CIM, a seeded data room, and the buyer list.
The teaser is a one- to two-page anonymous profile: industry, rough geography, revenue and EBITDA presented as ranges, and the handful of investment highlights that earn a second look. Its craft lives in a tension: specific enough that the right acquirers lean in, generic enough that a knowledgeable competitor cannot name the company from it.
The CIM (confidential information memorandum) is the process’s central document, commonly 25-40 pages: the story and the numbers. A great CIM contains:
- An executive summary that stands alone, because many first readers never go past it.
- The thesis in plain terms: why the business earns what it earns, and why that continues under an owner who is not you.
- The revenue model dissected: recurring versus re-occurring versus project revenue, contract terms and renewal mechanics, pricing power, unit economics where they matter.
- Customers ranked and anonymized (Customer A, Customer B), with concentration stated plainly and the mitigation story beside it, not buried in an appendix.
- The organization as it will exist post-close: the second management layer, who owns which relationships, and what the owner actually does all day.
- Financials an acquirer can model from: three to five years of historicals, the trailing twelve months, the adjusted EBITDA bridge with its add-back schedule (Chapter 6), and a forecast whose assumptions are visible and defensible.
- Growth opportunities that are specific and costed: a named adjacent service line with an identified customer base beats “geographic expansion” every time.
- Risks raised before the reader finds them, each paired with facts.
Why do acquirers skim bad CIMs? Because they can. An active platform’s deal team screens dozens of CIMs a month, and its pattern recognition is ruthless: adjectives where numbers should be, hockey-stick forecasts detached from historical growth, an EBITDA figure with no bridge to the financial statements, concentration you have to hunt for. Each gets read, correctly, as a preview of what diligence will find. The CIM’s real function is not persuasion; it is to let an acquirer build a preliminary model and price an IOI without a single meeting. A CIM that cannot support a model produces either a pass or a lowball range with wide error bars. And because every claim in it will be re-verified in diligence, the CIM is also a promissory note: it should never write a check the data room cannot cash.
While materials are drafted, the data room gets seeded with the core documents diligence will demand (Appendix D is the checklist), and sell-side quality of earnings work, where used, lands here so the adjusted EBITDA number enters the market already defended.
The buyer list is the other half of preparation. Advisors build the universe from strategic acquirers (competitors, adjacent players, customers, and suppliers), sponsor-backed platforms hunting add-ons, private equity firms whose stated theses fit, family offices, and, at the smaller end, search funds and independent sponsors. Then they tier it: Tier 1, the names with obvious fit and proven appetite; Tier 2, plausible; Tier 3, opportunistic. Tiering drives sequencing and per-name information decisions, including the most delicate one: whether, when, and with how much information direct competitors are approached at all.
Marketing and NDAs: Typically 6-10 Weeks
Outreach begins with the teaser. Interested parties sign a nondisclosure agreement before learning the company’s name, then receive the CIM and a process letter setting the deadline and required contents for indications of interest. The discipline of this stage is staged information: teaser, then NDA, then CIM, then limited data access after IOIs, then the full data room only in exclusivity. Information is negotiating capital. It is spent, not given.
Deadlines do the other half of the work. Requiring IOIs on a single date forces acquirers to price simultaneously and against each other, rather than picking the owner off one conversation at a time.
Attrition through the funnel is not failure; it is the design. Each gate exists to concentrate serious intent and to stop spending the owner’s hours on tourists.
Illustrative example. In a fairly broad lower-middle-market process, an advisor might contact 150 qualified parties. Roughly 40 sign NDAs and receive the CIM, 12 submit IOIs, 5 advance to management meetings, 2-3 deliver letters of intent, and 1 closes. The counts vary widely with the company and the market, but the shape rarely does.
Indications of Interest: The First Real Prices
The IOI round, together with the management meetings that follow it, typically spans 4-8 weeks. An IOI is a short, non-binding letter: a valuation range (stated as enterprise value on a cash-free, debt-free basis), the earnings number it is based on, a sketch of structure and financing sources, diligence priorities, a timeline, and required approvals.
Reading IOIs is its own skill. Acquirers know owners screen on the top of the range, so ranges are marketing documents: treat the bottom as real and the top as an invitation to meetings. More telling than the range is its basis. “6.0x EBITDA” means nothing until you know whose EBITDA number, with which add-backs accepted, measured over which period; two IOIs at the same multiple can sit far apart once their earnings bases are reconciled. Equally telling are financing specificity, the realism of the diligence plan, and whether the approvals paragraph lets slip a committee that has not yet seen the deal.
The cull that follows is judgment, not arithmetic: commonly four to six parties advance, weighted toward credibility and fit rather than headline numbers alone.
Management Meetings: The Story Under Cross-Examination
What acquirers assess in management meetings rarely appears on the agenda. First, the team: does the second layer speak with command, or does the owner answer every question? A meeting where the owner personally fields sales, operations, and finance questions is key-person evidence collected live. Second, the truth of the story: do the numbers spoken in the room reconcile with the CIM? Inconsistency between document and conversation is the fastest way to turn an enthusiastic bidder into a cautious one. Third, partnership chemistry, which matters enormously wherever rollover equity, an earnout, or a transition period means years of working together.
The meetings run both directions. The questions an acquirer asks preview its diligence style and its behavior as a counterparty; an acquirer who is careless with your confidentiality now, or theatrical about small issues, is showing you the exclusivity period in advance. Preparation is unglamorous and non-optional: rehearse, agree on the facts, and never improvise answers on concentration, pipeline, or forecast assumptions.
The Letter of Intent: Typically 2-4 Weeks, and the Leverage Cliff
From the finalists come letters of intent, typically negotiated over 2-4 weeks. An LOI states price and structure (headline enterprise value and the consideration mix: cash at close, escrow or holdback, seller note, earnout, rollover equity), the earnings basis, the working capital peg methodology at least in mechanism, the diligence plan and timeline, financing sources, key employment and transition terms for the owner, and an exclusivity grant. Nearly all of it is non-binding; exclusivity, confidentiality, and sometimes expense provisions bind. The purchase agreement terms the LOI foreshadows belong to Chapter 13.
Understand what exclusivity is: your agreement to send the competition home, commonly for 60-90 days, while one acquirer completes diligence and papers the deal. The request itself is reasonable. No acquirer will spend six figures on quality of earnings, legal, and advisory work while you keep shopping its bid. It is also the single largest transfer of negotiating power in the entire process, and it happens with one signature.
Consider the before and after. The week before you sign, you hold competing offers, control the calendar, and control the information; the acquirer’s dominant fear is losing the deal. The week after, your alternatives have gone cold, the acquirer knows you dismissed them, and every point left open resolves slowly against you. Restarting is not free either: a company that returns to market after a failed exclusivity comes back stale, and every remaining acquirer asks the same question: what did the first one find?
Sophisticated acquirers understand this cliff perfectly, which is why some concede quickly and cheaply at LOI, keep terms vague, and save the real negotiation for week six of exclusivity. The defense is symmetrical: negotiate the deal before the cliff, not after it. Anything material left as “customary” or “to be agreed” in the LOI will be defined later by the side that still has options. That means price tied to a defined earnings base. Structure in numbers, not concepts. The working capital peg methodology. The escrow and indemnity framework, at least in headline terms. The owner’s employment and rollover terms. And exclusivity kept short, extendable only against milestones met: quality of earnings fieldwork complete by a date, first draft of the purchase agreement delivered by a date.
Key point. Signing an LOI is both the moment of maximum leverage and the act that spends it. Negotiate every term you actually care about while competition is still alive, keep exclusivity short and milestone-based, and treat vagueness in an LOI as a bill that arrives later, at a worse exchange rate.
Choosing among LOIs is a four-variable decision: price, structure (expected value, not headline; Chapter 12 shows how two offers at the same number can be millions apart), certainty, and fit. Certainty deserves its own screen. Where is the money, exactly, and what stands between commitment and funding? What fraction of this acquirer’s signed LOIs became closed deals, at the LOI price? Will they give references from owners they have bought from, including deals that got difficult? What internal or investor approvals remain? Fit covers the rest of your life: what happens to the team, the brand, and, if you roll equity, your next five years.
Common pitfall. Going exclusive on the flashiest headline number without screening for certainty. The pattern repeats: the highest bid comes from the acquirer with the least committed financing or the loosest approval process, exclusivity is granted, and in week six diligence “discovers” the justification for a price near what the disciplined bidders offered on day one. The owner has spent two months, sent the runners-up home, and now renegotiates with no alternatives at the table. The headline number never existed; the leverage that could have tested it did, once.
Exclusivity, Diligence, and Documents: Typically 8-12 Weeks
Inside exclusivity, two workstreams run at once: confirmatory diligence (Chapter 11 covers what acquirers probe and what kills deals) and the negotiation of the definitive purchase agreement (Chapter 13). The word “at once” is load-bearing. Processes that finish diligence before opening the documents add weeks, and weeks are not neutral: deals decay with time, a principle Chapter 17 develops. During this stage the owner’s job compresses to three verbs: respond fast, disclose early, keep performing. Issues surfaced by the owner on day one cost a fraction of the same facts excavated by the acquirer in week nine.
Closing
Signing and closing may be simultaneous or separated by days or weeks while third-party consents, financing mechanics, or regulatory items clear. The funds flow memorandum maps every dollar: debt payoff, transaction fees, escrow funding, the estimated working capital adjustment, and the net wire to the owner. The close itself is anticlimactic by design: signatures released, wires confirmed, a phone call, and a company that has changed hands before lunch. The announcement plan for employees and customers, agreed well in advance, executes that afternoon, and it should be the first time most of them learn anything happened.
Confidentiality: The Whole-Process Discipline
Three audiences can hurt you if they learn too early. Employees start updating resumes, and the best ones have options. Customers treat a pending sale as an invitation to renegotiate or rebid. Competitors turn it into a sales weapon: “they’re for sale; who knows who will own your account next year.” The controls are layered: a code name for the project, an anonymous teaser, no company name before an NDA, and the most sensitive data (customer names, employee compensation, pricing detail) held back until late diligence. Competitor bidders get the thinnest information latest, and at lower-middle-market scale a simplified clean-team approach applies: the most competitively sensitive material is reviewed by the acquirer’s outside advisors rather than its operating executives. Internally, the circle stays small, often just the owner and a controller or CFO until late in the process, with prepared explanations for data requests and visitors. Assume a leak will eventually happen, and agree on the response before it does.
Running the Company While Selling It
A sale process is a second full-time job: data requests, meeting preparation, advisor calls, diligence sessions, hundreds of hours of owner and finance-team time over 6-12 months. The existential risk is that the business drifts while the owner lives inside the deal. Deals are priced on trajectory. Miss your own CIM forecast during exclusivity and you hand the acquirer a repricing argument that is, unlike tactical retrading, entirely legitimate. Chapter 17 treats this double bind in full. The mitigation is structural, not heroic: let the advisor absorb process management, keep the internal deal team small, and protect the owner’s calendar, because the owner’s single most valuable contribution to the process is hitting the numbers the CIM promised.
The Bottom Line
- A private company has no market until a process builds one; the choice among broad, targeted, and negotiated processes sets the tradeoff among competition, confidentiality, and speed.
- The CIM exists to let an acquirer model and price the business without a meeting; a CIM that cannot support a model gets skimmed, discounted, or passed on.
- Funnel attrition is the design: illustratively, 150 parties contacted becomes 40 NDAs, 12 IOIs, 5 management meetings, 2-3 LOIs, and 1 close.
- Leverage peaks the day before exclusivity and falls off a cliff at signature, so every material term belongs in the LOI, negotiated while competition is still alive.
- Choose an LOI on expected value and certainty of close, never on the headline number alone.
- During exclusivity the owner’s most valuable contribution is keeping the business on plan; a performance dip mid-process is the classic self-inflicted retrade.