Market the deal

Selling a business – Part III:

We can mar­ket the deal after pre­par­ing the busi­ness for sale. We shall bring the oppor­tun­ity to the mar­ket main­tain­ing con­trol of the pro­cess and the dis­tri­bu­tion of inform­a­tion, while motiv­at­ing bid­ders along par­al­lel paths on a level play­ing field in case of a broad or restric­ted auc­tion, or even lim­it­ing it to an indi­vidu­al pro­cess, accord­ing to your require­ments.

Even if flex­ib­il­ity and read­i­ness to amend pro­cess and papers is neces­sary, a dis­cip­lined approach requires best pos­sible pre­par­a­tion and exclus­ive rep­res­ent­a­tion. Any com­prom­ise on such ini­tial decisions is a trade-off pos­sibly affect­ing the out­come for the seller.

The normal procedure to market the deal is to:
  • Con­tact buy­ers with a reduced but strong no-name sum­mary focused on stra­tegic and quant­it­at­ive key ele­ments. Spe­cial­ized data banks are gain­ing import­ance to expand reach and com­pet­i­tion bey­ond the spe­cif­ic researched buy­ers list.
  • Agree con­fid­en­ti­al­ity (also referred as NDA, CU, NCND).
  • Deliv­er the detailed Offer­ing Memor­andum (also IM, CIM)
  • Fol­low up, com­plete inform­a­tion, arrange inter­ac­tion with man­age­ment. The bet­ter the Offer­ing Memor­andum, the less­er the man­age­ment dis­trac­tions, delays and dif­fer­ence in pro­spect buy­ers’ treat­ment. At this point there might still be many parties inter­ested in receiv­ing inform­a­tion.
  • Receive non-bind­ing indic­a­tions of interest. These uni­lat­er­al indic­a­tions which are some­times referred as let­ters of intent (LOI) too, shall con­tain inform­a­tion about the real interest, fit and abil­ity to execute the trans­ac­tion.

In the mean­time, inputs from buy­ers’ inquir­ies and from indic­a­tions of interest help com­plete the Data Room extent and pre­par­ing man­age­ment present­a­tions.

At this point, strongly inter­ested parties on the short list will be gran­ted access to the Data Room, pro­ceed to face-to-face meet­ings, man­age­ment present­a­tions, or some­times even site vis­its and be invited to sub­mit final bids pos­sibly based on a draft trans­ac­tion struc­ture or even a draft sale agree­ment, or a share pur­chase agree­ment (SPA).

Bring­ing to the mar­ket the deal, have assumed a bid­ding / auc­tion pro­cess while also easi­er and more con­fid­en­tial but less max­im­ising bilat­er­al pro­cesses with single coun­ter­parties are com­mon too.

More details about how to sell a com­pany are approached in the next post. If you have ques­tions, con­sult us, we’ll be glad to help.

Preparing for sale

Selling a business – Part II:

Let’s pre­pare for sale. In M&A cri­ter­ia and timeline we didn’t go into details. And now we won’t tell you here to increase the value of your busi­ness before selling it, as we assume that you have been doing it up to now as well as you could and planned the exit. If how­ever, the struc­ture is not adequate to prop­erly func­tion without the own­er or presents oth­er issues, we should go back one step and do the pre­lim­in­ary home­work. If some­body else just might do it bet­ter, it opens a chance and con­firms the right time to sell.

At this point one has just to make sure that the value is recog­nized and quan­ti­fi­able by the buy­er at least as well as it is for you, also con­sid­er­ing the past evol­u­tion. What is clear for you might often not be so for a pro­spect buy­er.

Prepare for sale

To assure the neces­sary trans­par­ency, and to under­stand the value per­ceived by poten­tial buy­ers, we shall start gath­er­ing rel­ev­ant inform­a­tion such as:

  • Review­ing busi­ness plans and mar­ket reports, fin­an­cial reports and pro­jec­tions, stra­tegic and fin­an­cial ana­lys­is.
  • Con­fid­en­tial talks with man­age­ment and employ­ees.
  • Elab­or­ate a poten­tial buy­ers list with interest rationale.

This helps to pos­i­tion the busi­ness with­in its mar­ket envir­on­ment, show­ing clearly its com­pet­it­ive advant­ages, strengths and the quant­it­at­ive ele­ments for its valu­ation.

Valu­ation will start from a com­par­is­on of fin­an­cial per­form­ance with com­par­able busi­nesses for which mar­ket prices are avail­able from trad­ing or recent trans­ac­tions which allow to imply mul­tiples of such as EBITDA, rev­en­ues and oth­er rel­ev­ant indic­at­ors. A more accur­ate price val­id­a­tion would include a detailed pro­jec­tion of cash flows as is or with assump­tions such as of changes of use of assets, syn­er­gies with acquirers, or whatever rationale can add value to the trans­ac­tion, con­sid­er­ing chan­ging scen­ari­os, and sens­it­iv­ity ana­lys­is dur­ing the expec­ted time to con­clude the trans­ac­tion. Such num­ber crunch­ing sup­ports nego­ti­ation points and can also the be the basis for an LBO (Lever­aged Buy­out).

A key of the M&A pro­cess is the pre­par­a­tion of a pre­cise and pro­fes­sion­al Con­fid­en­tial Inform­a­tion Memor­andum or Offer­ing Memor­andum which includes all an inter­ested buy­er needs to val­id­ate his invest­ment hypo­thes­is and reach a real­ist­ic valu­ation, not to be con­futed by later detailed due dili­gence. It resembles a thor­ough busi­ness plan with its sum­mary and invest­ment con­sid­er­a­tions, descrip­tion of the com­pany, its struc­ture, mar­ket ana­lys­is, trends, oppor­tun­it­ies, com­pet­i­tion, fin­an­cial inform­a­tion, etc. and out­lines the bid­ding pro­ced­ures.

Con­struc­ted on this con­tent a blind teas­er with a descrip­tion of the main char­ac­ter­ist­ics of the com­pany, the reas­on for the trans­ac­tion, the main fin­an­cial inform­a­tion from the last and the pro­jec­tions for the next years will attract the investor to the advant­ages of the offer.

Who wants to buy shall come and see!” is the oppos­ite approach, which sel­dom works out well. Why should poten­tial buy­ers put con­sid­er­able effort in study­ing and ima­gin­ing the vir­tues of an unknown tar­get? You bet­ter take your time and some resources to pre­pare for sale to be more suc­cess­ful later. 

Fur­ther pre­par­a­tion is ded­ic­ated to com­plete the pro­spect buy­ers list based on com­ple­ment­ary views based on the com­pany exper­i­ence and the advisers research. Such a list is ana­lysed on pre­sumed interest, stra­tegic fit and poten­tial syn­er­gies, fin­an­cing and abil­ity to execute as well as com­pet­i­tion con­sid­er­a­tions.

More details about how to sell a com­pany in the next post. If you have ques­tions, con­sult us, we’ll be glad to help.

M&A – Criteria and timeline

Selling a business – Part I:

The timeline selling a busi­ness and the cri­ter­ia to achieve best res­ults influ­ence your decision to sell your com­pany or parts of it.

Selling your com­pany is often an emo­tion­ally charged once in a life­time decision. You will bene­fit from hav­ing a pro­fes­sion­al along­side you that man­ages the pro­cess and does the work leav­ing emo­tions aside.

The pro­cess includes a few import­ant steps, which should be fol­lowed to optim­ise chances for a suc­cess­ful trans­ac­tion, meet­ing object­ives such as to:

  • Max­im­ize value for the seller
  • Meet stra­tegic restric­tions
  • Main­tain busi­ness value
  • Keep pro­cess under con­trol
  • Do not over­bur­den man­age­ment
  • Do not dis­rupt oper­a­tions
  • Main­tain employ­ment
  • Retain key per­sons

Pro­fes­sion­al sup­port helps defin­ing real­ist­ic terms and adds neces­sary resources to your man­age­ment, account­ants, tax pro­fes­sion­als and law­yers to mas­ter the pro­cess. Such sup­port is typ­ic­ally provided by invest­ment banks, M&A advisers and busi­ness brokers. They can help you pre­par­ing the com­pany for sale, under­stand­ing the effect­ive value of the busi­ness or its assets, high­light the most valu­able aspects, access buy­ers, gen­er­ate par­al­lel com­pet­i­tion, flex­ibly design an adequate trans­ac­tion struc­ture and min­im­ize oper­at­ive dis­rup­tions and delays anti­cip­at­ing due dili­gence and valu­ation issues. Bring­ing resources, rig­or and pro­fes­sion­al expert­ise to the pro­cess doesn’t come free, and, as usu­al, you will get what you pay for. The final sale res­ult depends on how the whole pro­cess is man­aged.

Once you man­date an M&A adviser, you will gen­er­ally have a few intens­ive months before execut­ing the trans­ac­tion.

Timeline selling a business:
  1. Pre­par­ing the busi­ness for sale – can be very swift, if the busi­ness is trans­par­ently struc­tured and doc­u­mented or take quite long if it isn’t.
  2. Mar­ket­ing the busi­ness – might take a few weeks, depend­ing also on the strategy and the avail­ab­il­ity of buy­ers.
  3. Select­ing indic­a­tions of interest and fol­low­ing up with data and meet­ings – might take some weeks, depend­ing from the qual­ity of inform­a­tion and avail­ab­il­ity of buy­ers.
  4. Gen­er­at­ing com­pet­i­tion through such as a struc­tured auc­tion to receive bind­ing bids and draft­ing the trans­ac­tion struc­ture – can be very swift, once buy­ers have been sat­is­fact­or­ily informed.
  5. Mas­ter­ing due dili­gence, final nego­ti­ation and clos­ing – might take weeks to months, depend­ing from its com­plex­ity and data qual­ity.

Delays to the expec­ted timeline selling a busi­ness are rel­at­ive to the chosen setup, if days become weeks, weeks can become months. Hic­cups lurk at each step, espe­cially if the ini­tial pre­par­a­tion is not accur­ate. We will have a look at them sep­ar­ately. Of course, some short­cuts can make sense in cer­tain cases, but the prin­ciples should apply to most cases, includ­ing to the selling of major prop­er­ties.

Arranger helps you to => get Attention => create Attraction => pass Analysis => execute Agreements

More thoughts about how to sell a com­pany will fol­low. If you have ques­tions, con­sult us, we’ll be glad to help.