26 September 2022

Step by step: how to sell business

The process of selling a firm through an M&A process involves the transfer of ownership from one owner to another. Knowing when to sell a firm is a massive accomplishment for shareholders, the management group, staff, the brand, and for a business owner. The sale of a firm is an incredibly challenging and time-consuming process for the executive team. Depending on the seller's timeframe, the team may seek consultants' assistance to smooth the firm's sale. You can ensure that all shareholders' goals can be achieved by enlisting specialists to assist in the transaction's facilitation.

Image header - Step by step

A number of processes must occur for the selling operation to be successfully completed. The selling procedure could be emotionally demanding for the owner. When it is decided to sell a company to a third party, the M&A sales process begins with the creation of a transaction plan and concludes with the signing of the purchase agreement.

Step by step - 1

Although each stage is unique in its way, they are all equally important to the procedure. These phases might overlap in timing and execution because the process is quite flexible. Each stage is summarized below with a graphical explanation.

First step: transaction strategy and a long list of investors

Step by step - 2

Creating the transaction strategy is the first step in the typical M&A selling process. The concept of your strategic intention has to be outlined first. It means you must be sure of the benefits you intend to obtain from selling the business. Even if you wouldn't end up being purchased, it's essential for you as the seller to be aware of your objectives before entering a possible sale. The adviser will offer some potential solutions when you've clarified the idea.

An overall transaction timeline is something important here. If you want to get the deal done, you should have a clear roadmap of what you need to do. Additionally, you must have established an effective internal and external communication system that will empower you during the prospective transaction.

During the first phase you will determine your desired buyers (or buyer qualities). Be fair and let your business's financial and operational decisions influence your strategy. You might need to establish search parameters before discovering potential investors, which may help identify target companies. These criteria may be determined by sector, geographic location, portfolio of clients, financial performance, market share and possible synergies. Furthermore, it would help to choose potential investors based on factors including company culture, general strategy, and possibilities to finance the transaction. Afterward, you will have compiled a so-called long-list of investors from the ranks of financial and strategic players, which will be later addressed in the agreement with consultants helping you with the M&A process.

Second step: preparation of teaser

Step by step - 3

It goes without saying that some paperwork, particularly in the fields of business and finance, must be provided before you can complete a transaction. During the second step, you will have created a Teaser, which is a short document that officially introduces your business to potential investors, showing the basic finances and transaction perimeter. It is the document that is typically created by the team of the chosen advisory appointed to prepare the selling of the company. It simply has 2-8 pages and provides an overview of the company’s business and the investment opportunity it is providing. In further depth, it may just emphasize favorable aspects of the business and its services. For instance, data on sales could be disclosed but data on costs might be withheld.

It needs to be repeated that even if it resembles an anonymous text, the word "empty" need not be used to describe it. That is not the case. It should contain sensitive information, but just enough for the receiver to determine whether or not to devote time in researching the potential purchase of the mentioned firm. Insofar as it confirms with the company that their information has truly been kept secret, including the fine-tuning of some figures so that they are less recognizable, the creation of the teaser is not only a matter for the adviser.

Third step: NDA preparation

Step by step - 4

Among the most crucial component is a non-disclosure agreement (NDA), which is essential for future discussions with potential candidates regarding the process’s requirement for confidentiality.

In general, it is a document that is exchange between the seller and potential investor in the initial stages of an M&A deal. The main purpose of NDA is to ensure that the candidate receiving confidential information wouldn’t share with other parties, if there is a benefit or no. Seller’s company face more risk from others finding out about the information, as it may not generate positive sentiments from customers and employees.

Usually, contents and terms in a NDA are following:

  • parties,
  • exceptions to confidentiality,
  • disclosure of information,
  • destruction of materials,
  • termination of confidentiality,
  • restraint provisions,
  • governing law and jurisdiction,
  • implications for breach of confidentiality.

Fourth step: Info Pack or Info Memo creation

Step by step - 5

Afterward, you have two options determined by the size of the transaction. You must prepare an "Info Pack" if your transaction is small or bilateral (and there are no tenders). It is a package of important documents based on the investor's offer, including financial and corporate presentations. Alternatively, if your transaction is large, you must create an Information memorandum, a thorough (about 50 pages) document that provides a detailed description of the firm. The prospective purchaser of your business will receive this document later. A pre-sale structuring will be necessary if you want to make “carve-out” of your company. You will probably need to prepare in detail the financial and business plans, which are required components of the Information Memorandum. The design of several scenarios for the tax-pre and post-transaction structuring of your firm is the last but not a minor step.

Fifth step: Non-binding offers

Step by step - 6

After creation of Info Pack or Info Memo, the next step is to attend the initial meeting with a possible candidate in the form of a so-called “management presentation and site visit”, which you, as the owner and important members of your company’s management, need to do. This presentation's information will assist the investor in deciding whether or not to continue considering your company's potential.

After you should deliver additional in-depth materials to the addressed investor when they express interest and sign the confidentiality agreement. The information in the Info memo should be sufficient to assess your business and make a non-binding offer. Non-binding offers from eligible candidates should then be requested, reviewed, and evaluated.

Sixth step: Due diligence and binding offers

Step by step - 7

Due diligence and review of received binding offers make up the fourth phase. More specifically, this is the time to conduct the due diligence, which requires access to highly confidential information from multiple parties. You may utilize a virtual data room, with the use of cloud technologies. Important transactional papers and data are safely stored there and may be uploaded and shared.

Once the binding offers have been submitted and assessed, you should establish the virtual data room. It will help if you do assessments before concluding a transaction, mainly concentrating on the commercial, financial, taxes, HR, and technological parts. It will be best if you do it to ensure everything is in its proper place. Don't overlook the comprehensive assessment, during which you must respond to inquiries from investors. Receiving binding bids from interested parties in the form of comments on the acquisition agreement marks the end of the due diligence process.

Last step: negotiations and settlement

Step by step - 8

Once all prospective buyers have submitted their bids, you should begin negotiating the ultimate transaction price. Consult with your advisors and acknowledge the strategic intent you outlined in the first step. Additionally, if you decide to proceed with a purchase, you must negotiate over the terms of the final transaction papers and ensure you have access to all relevant financial data.

Creating the language for the Share and Purchase Agreement (SPA) is one of the most critical steps in the M&A selling process. The following key financial and commercial aspects are included in it:

  • the relevant financial and commercial conditions,
  • the findings of due diligence investigation,
  • the description of the mechanism for paying the purchase price,
  • the representation and warranties of the buyer and seller,
  • the establishment of any penalties for non-compliance.

The transaction is complete once you sign the final purchase agreement; you have either merged with or been purchased by another firm, and then integration begins.