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Preparing for sale

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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.