How To Sell Your Business

There are four key stages to this process:

• Planning
• Marketing
• Due Diligence
• Legal Completion

Each stage can be of a different length and indeed in the best cases stage 1, planning, can spread over a number of years for a Company that is really strategically focused on maximising shareholder value.

Planning

In the planning stage it is normal to develop an information memorandum which is a mixture of factual information and marketing of the business. Within this process a good adviser should be undertaking a “pre-due diligence” exercise to ensure the information used to market the company for sale is robust and not capable of attack under a purchaser’s due diligence.

Ideally this phase should also include, inter alia.

• appointment of lawyers and a review of contractual documentation in the business;
• appointment of tax advisers;
• a clear understanding of both shareholder personal objectives and the corporate objectives of the business;
• an evaluation of the business’s market positioning as compared to its competitors and thereby a focus on potentially strategic purchasers;
• full research exercise of potential purchasers, internationally if appropriate, and including an assessment of the likelihood of private equity interest;
• planning for the appropriate timetable for the process taking into account not only fiscal and financial issues, but holidays both personal and national.

Marketing

Having established an agreed set of target potential purchasers, which may be stratified as appropriate, the marketing phase involves the approach to target, confidentially and generally exploring the strategic significance of the company to the purchaser both by provision of the information memorandum and verbally.
Whilst proper planning is vital to any project management process, it is the marketing phase and the vigour of the ongoing process that sets the tone for the subsequent negotiations. Not negotiating specific terms of a confidentiality letter not only makes the purchaser realise the seriousness of your process, it cautions the purchaser that you will negotiate hard throughout the process.

By controlling the process it should be possible to bring a number of bidders, each with the same financial and other information (supplemental to the original Information Memorandum if appropriate), to a bid deadline. This creates a framework for an auction process through which the price can be improved.

The marketing process usually comes to an end with the choice of a preferred purchaser and the granting of exclusivity but all processes are different and can be dependent on how the process itself unfolds.

It is usual that a set of heads of terms are drawn up with the preferred purchaser which summarises the main terms of the transaction. At this point care is required as the process can shift in emphasis. Often purchasers feel they have you on the “hook” at this stage and the “courtship” so far can change to a more aggressive approach.
To avoid this, but also to control the transaction going forward, both process management and control of information flow is key both to the due diligence and legal processes and the overall momentum of the transaction.

Due diligence

Whilst the lawyer selected at the outset has been “jogging” alongside, now the legal adviser needs to start to come to the fore. They need to control the provision of legal due diligence information as well as financial information either through a physical or virtual dataroom.

Planning and marketing are all about getting the price to a peak (but a sustainable peak). Due diligence and legal process are about keeping that price. This is where preparation can pay dividends. If the purchaser is left no excuse to change the price then your preparation has been full and appropriate.

Legal Completion

Probably overlapping slightly with the due diligence phase is the legal completion process where the lawyer takes the lead but is very much supported by the rest of the advisory team. It is critical not to lose momentum as the ball leaves one adviser’s hands and is passed to the lawyer who you need to get it over the line.

The culmination of the legal process and lengthy drafting discussions and negotiations is usually a table full of so much paper you will not believe that there could possibly be so many issues that could relate to your company. Far too many deals get completed in the middle of the night and this is to be avoided at all costs as tempers can get frayed and decisions can be made by tired brains. This also means that deals complete outside banking hours and therefore often there is a delay before the cash hits your account. Now you can pop corks and not before. If you do this at an earlier stage (eg at heads) it will almost certainly be premature and you will be disappointed!