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Exiting a lower-middle-market business is rarely a quick, over-the-counter transaction. Achieving maximum enterprise value requires intentional preparation, disciplined execution, and a clear understanding of what institutional buyers look for.
On a recent episode of the Exit podcast, host Steve sat down with Matt Andersen—President and CEO of Westlake Securities—to discuss the exact levers that drive enterprise value, realistic exit timelines, ideal deal structures, and critical mistakes to avoid.
With over 27 years in the industry and more than $5.7 billion in led debt securities and M&A closings, Matt breaks down his battle-tested playbook for founders and middle-market CEOs.
What Truly Drives Business Valuation?
When business owners think about exit value, many struggle to pinpoint what buyers evaluate beyond standard financial metrics. According to Matt, four main factors dictate your company’s valuation and optionality:
- 1. Scale: The M&A industry has matured significantly, making organizational scale the single most influential driver of premium pricing.
- 2. Growth: Buyers consistently pay up for strong, defensible top-line and bottom-line growth.
- 3. Risk Quotient: Tied across dozens of operational factors, risk quotient centers around concentration risks—such as relying heavily on a single customer or supply vendor.
- 4. Transaction Readiness: Being operationally and financially prepared to step directly into an institutional diligence process.
“Scale is going to be number one, growth is going to be number two… and then number three really boils down to risk patterns.” — Matt Andersen
Preparing for Diligence: Financial Readiness and Data Rooms
One of the leading causes of broken deals, walkaways, or late-stage price retrades is a lack of financial readiness.
When institutional strategics or private equity buyers evaluate your business, they conduct a rigorous Quality of Earnings (QofE) analysis. This acts as an in-depth audit of your P&L over the prior 12 months.
Key Preparation Steps for Sellers:
- Perform a Sell-Side QofE: If your business generates over $2 million in EBITDA, engaging an independent accounting firm to run a sell-side QofE before going to market establishes clear baseline metrics and accelerates buyer negotiations.
- Build an Internal Data Room: Organize key corporate documentation—including leases, employee agreements, customer contracts, and NDAs—in advance.
- Obtain a CPA Review: A full audit isn’t always mandatory, but a clean CPA review ensures your financial reporting is structured for an exit rather than standard tax filing.
The 9-Month Transaction Roadmap (The “3-Period” Model)
Matt compares the end-to-end M&A transaction process to a hockey game consisting of three 3-month periods:
[ Months 1–3: Preparedness ] ➔ [ Months 4–6: Marketing & LOI ] ➔ [ Months 7–9: Diligence & Closing ]
Period 1: Preparedness (Months 1–3)
During this phase, advisors clean up financial records, refine transaction marketing materials, and refresh digital touchpoints like LinkedIn profiles and company websites to ensure an institutional look and feel.
Period 2: Marketing & LOI (Months 4–6)
Materials are shared under Non-Disclosure Agreements (NDAs) with vetted buyers. Initial proposals—known as Indications of Interest (IOIs)—are received, seller/buyer culture fit is evaluated, and Letters of Intent (LOIs) are negotiated.
Period 3: Diligence & Legal Closing (Months 7–9)
Once the final LOI is signed, the buyer conducts detailed legal and financial diligence while definitive purchase agreements are drafted and finalized for closing.
Why Full Liquidity Can Take Up to 8 Years
While a transaction process takes around 9 to 12 months, true personal time and financial liquidity often require up to 8 years of foresight:
- Preparation & Deal Execution (~3 Years): Requires 1–2 years of operational scaling and organizational prep, followed by roughly 1 year to execute the transaction.
- Rolled Equity & Leadership Transition (~5 Years): In middle-market deals, buyers frequently ask founders to roll 10% to 30% equity into the acquiring vehicle. Additionally, sellers often remain to assist with executive search processes and shadow incoming replacement leadership.
Furthermore, external factors like market timing play a critical role. High levels of institutional “dry powder” (committed but uninvested capital) continue to drive valuations to multi-decade highs across specific sectors, creating lucrative exit windows.
Structuring the Deal: Simplicity Wins
Complex deal terms can undermine post-close relationships. Matt advocates for simplicity whenever possible:
- Preferred Structures: All-cash or cash combined with rolled equity transactions maintain strong alignment without unnecessary complications.
- Avoiding Cliff Earnouts: “Cliff” earnouts—where sellers receive zero payout if performance misses a fixed target by a narrow margin—frequently cause friction. Earnout structures should instead scale gradually in direct proportion to business performance.
Top M&A Mistakes Founders Make
When deals stall or underperform post-closing, failure can usually be traced back to a few distinct mistakes:
- Going to Market Too Soon: Entering the market without complete financial and operational readiness risks severe pushback from experienced buyers, lenders, and accountants.
- Unsubstantiated Projections: Promising hockey-stick growth without factual backing (such as clear demographic tailwinds, price escalation clauses, or signed customer pipelines) diminishes seller credibility.
- The Post-Close “Blowup” Triad: Transactions that fail post-closing typically suffer from a combination of falling financial performance, over-leveraged debt structures, and broken buyer-seller communication.
Final Takeaway: Relentless Execution
When asked what advice he would give his younger self, Matt emphasized momentum over perfection:
“Never let perfect be the enemy of good enough… daily execution and putting in the hours is maybe the largest contributor to success.” — Matt Andersen
