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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.