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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.