Decide what you want out of the process and surround yourself with people who will help you get there. Every set of circumstances is different and different sellers will have different motivations and aims when approaching the deal process – but in every circumstance a seller is best-served by approaching the exercise with some key points in mind.
Preparing for sale
In virtually all business sale scenarios, the buying party will undertake a so-called due diligence (‘DD’) investigation into the target business, by means of appointing a number of advisors (notably accountants and lawyers) to investigate the business. The exercise generally investigates every aspect of the business, from shareholdings to litigation, customers to employees, accounts and finance to taxation.
DD can be a time-consuming, invasive, and at times frustratingly repetitive process, but it informs every buyer’s view of the target business, and a company passing through a DD process with a clean bill of health will have paved the way for a smooth transaction process, minimising the risk of a buyer attempting to negotiate a price reduction into the deal or to insist on onerous risk-allocation provisions in the legal documents.
For all these reasons, undertaking your own DD exercise prior to getting into a deal process can be hugely advantageous. It involves some investment prior to the deal process, but this can be repaid in spades in enshrining value in the negotiation with the buyer.
Finding a buyer
Not exclusively, but most sales are made either to ‘trade’ or to ‘PE’, meaning the buyer is either another business trading in a similar field, or a private equity investor looking to take a stake in a company to fund its expansion and a planned future sale.
Identifying a buyer may be as simple as negotiating a deal with a 3rd party who makes a direct approach. This is fairly common – particularly as regards trade sales, where buyer and seller may be aware of each other already. But more commonly, a seller will use the services of a corporate finance (‘CF’) advisor to market the business for sale.
A good CF advisor does far more than sent out a business summary to its community and wait for offers – but instead, will advise a seller on optimising value, likely buyers in the market, recent valuations on similar businesses to have sold – and will upon sourcing possible buyers, work closely with the seller to agree the best possible terms with the buyer.
Deal process
Your key advisors on a sale are your lawyer, and your CF advisor and/or accountant/tax advisor. The process is intense, consuming and stressful, and the role of our advisor is to take responsibility for the process as a whole, leaving you to make decisions in an orderly and calm manner as the process unfolds.
This takes us back to our opening comment above – surround yourself with good people who are experienced in navigating the process and (critically) who start and end with listening to what you want to achieve from the process.