Money is not enough to ensure success after Corona. Facilitated loans and deferred payments only provide liquidity. Success requires resilience, a business model with a functioning supply chain, efficient operations and profitable sales to customers a swell as a solid capital structure. Companies and business units well-positioned in the value chain could gain market share as a result of the dislocation, accelerated technological development and online shift of business models. Others will have to reposition themselves. Simplifications in insolvency law can help also to protect the healthy.
Selling a business, Part IV
After Marketing the business, binding offers terms will be analysed on the way to a successful Deal Closing.
If a competitive bidding/auction process is maintained, final bids will follow further due diligence and there might often be no letter of intent. However, at a certain point of the process buyers might insist on exclusivity / preferred bidder status for a certain period or cost coverage before engaging in intensive due diligence and bilaterally agree terms on a detailed and negotiated letter of intent LOI / Term Sheet. This is reasonable but locks in the seller for a period related to the time to complete due diligence, which will be much shorter, if a vendor or sell-side due diligence has been made in advance, reducing thus the risk of a hiccup and increasing the chance of maintaining alternative bidders’ interest.
Less uncertainties and ready confirmation about the accuracy and reliability of provided information should also positively affect a potential buyer’s readiness to pay a higher price.
The negotiation phase will typically start from the SPA draft provided by the seller and the terms of the final bids or the carefully agreed LOI. The most convenient deal structure will be addressed considering many factors such as law, taxation or regulations: asset deal vs. share deal vs. merger, acquisition vehicles, carve-outs, etc.
Terms will address not only the shares or assets to be transferred, but many additional points such as closing conditions, representations and warranties to assure such as compliance of data provided during due diligence with reality or assuring that no working capital is diverted or preventing leakage of other assets before deal closing date (locked box), defects remedies and not least the terms of payment.
Payment terms lead to important consequences after deal closing:
- Cash – with no strings attached.
- Debt to be raised – you’ll have to support that step
- Vendor finance
- Earn out – you’ll still depend from the fate of the company
- Exchanging Shares – you might have to keep them for some time
Once all terms are agreed and the contract signed, closing conditions will have to be fulfilled and payments terms might affect you, but your company and its integration or restructuring is now somebody else’s business.
If you would like to sell a company, consult us, we’ll be glad to help.
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.
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:
- 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.
- Marketing the business – might take a few weeks, depending also on the strategy and the availability of buyers.
- 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.
- 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.
- 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.