The Process

Businesses within the same industry or sector can have widely different values, depending on a large range of factors, including: revenues & profitability; growth rates; customer profile, tenure and diversification; risk profile; liabilities, existing and contingent, etc. Before preparing to go-to-market it’s critical to get a sense of valuation. Do you understand the potential worth of your business? Curious to learn more? Complete this brief questionnaire to get your valuation. 

One of the most important steps is thorough preparation, the foundation needed to launch a successful sale process! Buyers need accurate financial and other information to assess your business and make a bid. Here’s a sample what’s needed:

1. 1. Financial – accurate historical (3-5 years) financial statements, plus a forecast that’s credible and based on realistic, defensible assumptions. Buyers are buying the future so make sure your forecast showcases the potential growth of your business and its industry.
   2. Other Records – getting your house in order to prepare for due diligence, including legal, employment, intellectual property matters, etc. Buyers will carefully review and analyze all of these and more. Be prepared for lots of detailed questions!
   3. Positioning – here’s where the right M&A advisor can make or break your deal. How your business is described to each type of prospective acquirer, stressing important nuances to appeal to different types of buyers, is mission-critical to getting the highest bids! It’s the persuasive aspect of the sale documents. Thoughtfully probing and understanding your business’s strengths and creating often multiple variations of the pitch documents for these different groups of buyers will pay huge dividends.
   4. Buyers’ List – your M&A advisor’s job is to prepare a comprehensive buyers’ list to set up for a broad, global canvas to expose your business to the widest array of logical prospective buyers. This includes groups of buyers not only from your specific industry/sector, but adjacent sectors. Our experience over the years is that the buyer willing to pay the highest price often comes from an adjacent sector. These buyers are eager to add capabilities outside of their core area to gain a strategic advantage.
   5. Go-To-Market Documents – sometimes called a ‘deck’ or a ‘confidential management presentation’ this comprehensive document showcases your business in its best light. Your M&A advisors will prepare this together with your input, and make it available under NDA to interested buyers. It needs to be thoughtful, thorough and focused properly to best position your business with buyers.

Once all the documents are ready, your M&A advisor will go to market, contacting the list of prospects. How this is done and by whom is key to your success vs. possibly having a failed deal. Does you advisor pick up the phone and call the prospective buyers or just send blind emails not knowing if they’re reaching the right decision-influencers / gatekeepers at each company? Do the partners with years of experience make these outbound inquiries, or delegate to juniors who are recent grads? How well do they know your company to tell your story, including the all-important positioning? Ask these questions as you evaluate which M&A firm you want to represent you. It makes a huge difference in the outcome of your deal.

Also known as the screening process, where your advisor and you vet buyers to determine seriousness, financial capability to do the deal, and ability to make a bid/no-bid decision in a timely manner. This step aims to weed out ‘lookers’ who are not serious. Similarly, prospects will be evaluating fit with their strategy and culture, and forming their initial views on value.

After initial discussions and exchange of information under NDAs with serious buyers, the advisor will typically set dates for receiving Letters of Interest/Intent (LOIs). Assuming the canvas of prospects has been conducted broadly (see above) and garnered sufficient interest, setting a deadline date for LOIs and providing specific guidance as to the content of these, is appropriate. This ensures a level playing field and ease of evaluating the relative merits of each bid.

With bid letters in hand the next important phase is negotiations on price and terms, while advancing further sharing of information to the bidders. There is an art to this, where the leverage of having multiple bidders comes in to play. The more competitive the process, with multiple LOIs, the stronger hand one has in getting the best possible price and terms in the final LOIs.

All the company documents organized and created in the preparation phase will have been uploaded to a data site, ready for buyers to review. Decisions need to be made along the way as to how much information is shared and what questions are answered at each stage of the process: before initial LOIs, before final LOIs, before definitive agreement is drafted, etc. Experienced judgement is necessary to guide such decisions, step-by-step.

With a competitive process where multiple bids are received, it’s often a good idea for the seller’s legal counsel to provide a form of Definitive Agreement which bidders are required to comment on in conjunction with their final LOI. Engaging the right legal counsel who specializes in M&A deals is important to smooth the process of finalizing the Definitive Agreement, working in concert with your M&A advisor towards a successful closing!

So many issues to consider: reps & warranties, escrows and holdbacks, earn-outs if any, cash and stock distributions, options / warrants. The list is long and it takes a team of professionals: M&A advisor, legal counsel and CPA to ensure everything is handled impeccably to protect you, ensuring proper payment of proceeds on closing, mitigate post-closing risks and overall take care of your best interests.

Proper planning ahead of time, during the final phases of the deal, for post-closing procedures and seamless integration is an important element to a successful deal. The seller needs to be mindful of this and work together with the buyer’s team in advance of closing to ensure a smooth transition. This is especially critical if selling management is required to stay on for a period of time, and paramount to realizing synergies and preserving post-close value.