It doesn’t matter whether you are selling a small business or a large complex group, all business disposals benefit from a well planned and executed process. Indeed, a well-managed process can have a significant impact on the price achieved by vendors.
Most disposals of businesses can be broken down into seven phases. These seven phases are listed below, with key tasks.
By working through each phase in a controlled and thoughtful manner, vendors can manage the process so that they only move to the next phase when they are happy to do so.
Phase 1 – Planning
- Consider all options open to the vendor (e.g. Trade Sale, Management Buy-Out, selling equity to a financial investor or a corporate partner).
- For privately-owned/managed businesses (e.g. family companies), be honest with yourself. What are you trying to achieve from the sale? What do you want to do with the rest of your lives post-sale? Unless, you confront any hard issues now, there is a risk that the sale process may not achieve your goals.
- If the sale is being led by an executive who has no or minimal equity stake, for example a CEO of a group disposing of a non-core business, the process has less of a personal agenda and should be driven by the strategic aims of the Group’s Board.
- Whatever the size of the business, vendors should develop an opinion on the value of the business, or at least the minimum offer price they would accept.
- Prepare (‘groom’) the business for sale.
- Decide whether to move forward with the sale process.
- Assuming the decision is to pursue a trade sale or an investment from a strategic partner, the next phase is to identify potential buyers.
Phase 2 – Identify potential buyers
- Consider any internal knowledge of potential buyers.
- Liaise with trusted advisors and contacts.
- Perform desk-top research (e.g. M&A databases, Trade Press).
- Develop a list of potential buyers and, if possible, identify their acquisition criteria.
- Attempt to find the buyers with the most to gain from a deal. Put yourself in their shoes.
Phase 3 – Make contact with potential buyers
- Double-check that you have done all you can to groom the business for sale.
- Prepare a concise Information Memorandum.
- Make contact with potential buyers, on a ‘no-names’ basis if required. This can be done by phone or in writing. An anonymous one-page ‘teaser’ document can be issued at this stage to explain the investment opportunity.
- Obtain a signed confidentiality letter from interested parties and release the Information Memorandum.
- Unlike buyers, vendors ideally want several parties in the game, to create an auction process.
- Despite vendor worries, it is possible to manage a controlled auction ensuring that only key parties are aware of the potential transaction until the deal is made public.
- Assess whether the sale is likely to succeed, given the buyers involved at this stage.
- If buyer interest warrants it, invite offers now to reduce the number of parties involved.
- Alternatively, move to written offer stage in line with a formal timetable issued by the vendor.
Phase 4 – Offer
- Set deadlines for written offers, in line with a formal deal timetable. Too aggressive and the timetable may smack of undue speed or even a panic sale; but the timetable should be set to keep up deal momentum.
- Ensure that buyers have all the information required to submit full offers. This may involve releasing additional information at this stage.
- Confirm what you need from bidders in a formal written offer (e.g. price, extent of due diligence, conditions of the offer and post-acquisition strategy).
- Receive offers and consider whether to move forward with any of the buyers.
- Consider whether it is advantageous to shortlist two or more parties, to clarify the details of their offer.
Phase 5 – Negotiate key terms of the deal
- If required, hold meetings with shortlisted parties to understand any offer details and release additional information needed.
- Identify your preferred buyer.
- Clarify key terms of a deal and issue Heads of Agreement.
- Ensure both Boards (buyer and vendor) approve the proposed deal on behalf of their shareholders/owners.
Phase 6 – Due diligence
- Buyers will want to perform Due Diligence. Vendors will have to engage with and manage this process constructively and carefully.
- Access to financial and commercial information should be closely controlled.
- Site visits should be kept to a minimum at this stage.
- If the deal includes an earn-out structure, vendors should make sure that they check key facts about the buyer, including the buyer’s previous acquisitions/earn-out history.
Phase 7 – Finalise contractual negotiations and legal completion
- The buyer will issue a Sale & Purchase Agreement (SPA), unless the vendor has been pro-active and has already issued a draft for discussion.
- Vendors must review any Disclosure Letter carefully, with the help of lawyers.
- A final version of the SPA is approved.
- A date for a formal completion meeting is agreed.
- Hold the legal signing/completion meeting, with lawyers present.
- If required, agree the details of any public announcements of the deal. Highlight the positive aspects of the deal for all parties and the opportunities available in the near future.
If you need hands-on support in planning and executing a disposal of an SME business, I can help including working alongside existing advisors.
Please do get in touch for a no-obligation, free discussion – see our Contact Us page for how to reach me.