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.