Why do you think your company is worth that figure?
Or, what’s your asking price? Or what’s your number??
Are you prepared to answer that question?
So, here’s the trick - when considering your exit, bring yourself into a selling process.?
Unless you’re selling a very unique business, an exit selling process will likely go like this;
1 - Valuation and initial engagement
To close a successful exit, it is imperative to understand the value and strategic positioning of the business within the relevant market. Work with your shareholders, your accountants and other stakeholders to develop a valuation for the business based on relevant comparables and industry multiples appropriate for your industry niche. Then, determine target prices based on the least and most likely acquisition scenarios. Your accounting team can then perform mock due diligence and vet the company during the initial engagement. To ensure your business is adequately represented, the company and its shareholders should conduct thorough due diligence and reference checks on the representatives leading the negotiations - key to avoiding surprises down the line.
2 - Offering memo and deal positioning
An alternative is to engage with an M&A consultant. They work directly with business sellers to formulate what is often referred to as the "Pitchbook", "The Book", "Confidential Marketing Memorandum (CMM)", or "Confidential Information Memorandum (CIM)”. This document provides the most comprehensive summary of the business' product and service offerings. The plan should include employee and financial information for future expansion and growth prospects. Consider it as a business plan for exiting your company. Investors look for it before considering an investment in your company as a "going concern". Information about your business operations, marketing, and finances is provided too. The report provides details regarding the company's assets, including tangible and intangible assets, liabilities, cash flows, significant customers, key employees, general market analysis and trends, and the reasons for the sale. It’s also helpful to draft the offering memo early so that, in the end, just a few minor tweaks might be needed to comply with changes in the business.?
3 - Buyer selection and outreach
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Instead of hanging a "business for sale" sign, perform two steps at this stage of the process. First, in an M&A scenario, identify potential strategic acquirers willing to pay the most for your business. Second, add a wide range of financial investors to the strategic shortlist. You should receive approval of this list from all shareholders or interested parties. Following approval of this list and publication of "the book", the business could be presented in a "blind" way to potential strategic and financial buyers. In this manner, confidentiality is maintained for the seller, and the attempted sale does not disrupt business operations. Two groups can be distinguished between business buyers: financial buyers and strategic buyers. Numbers are the only thing that matters to financial buyers. They're interested in returns (ROE, ROA, etc.). Their primary focus is that the money they inject brings back the highest returns. For strategic buyers, what matters is not something that will break them out in a sweat - within reason - at the time of making an offer. Some strategic buyers are even willing to pay more because it's about synergies between their businesses and yours. If you think about legacy and your employees, the strategic buyer is the one for you. Once all on the list are considered, direct confidential outreach is performed and negotiations may begin.
4 - Negotiation and value enhancement?
(Apologies in advance to negotiators who take offence though we only call things by their name).?
You’ve likely heard that expert negotiators get deals done and close better deals, ie. more cash for you. However, you won’t hear them say that proportionally they ruin many negotiations because often their biggest motivation is their own fees, not necessarily what is negotiated, ie. higher selling price, higher fees for them.
So to avoid the trap of negotiation for negotiation sake, ensure to line up several buyers. In this way, everyone is more relaxed and will work towards closing the best deal rather than ‘playing’ the negotiations; stalling to induce buyer anxiety or compromising your values to win the sale on the table, simply because there’s only one bidder at the table.?
Another caveat is that fit and price don’t always match. Remember, you are selling. You have a purpose and a vision of what to do next. You can get it all, though consider how you sell your own products and services - you may agree to additions or subtractions to close the sale. Similarly, to win the deal for your company exit, it may be necessary to weigh the offer up and consider where you’re drawing the line.?
5 - Due Diligence & Closing
Let’s not get bogged down here - due diligence is tedious, and many questions may arise that you haven’t anticipated. As with any process, can you take due diligence step by step? Of course, you can. Make sure each step is fully closed so there’s no returning to it later. Once all has been agreed upon and the decision is made, the final stage is closing. Depending on the back and forward between legal teams this can take time, though as all is already agreed between 30 and 90 days is the usual.?
Disclaimer - This article does not constitute legal, accounting or tax advice and is for educational purposes only. You are fully responsible for sourcing third-party independent advice from reputable professionals on the matter.?
If you'd like to discuss the opportunity to sell your company, let's connect via Linkedin or use the contact form to get in touch. We're building a unique integrator company, and we'll need experienced partners in that company too.
What's your risk in picking up the phone to call or Whatsapp me on + 353 86 0 444 770? In fact, less than three minutes on the phone could satisfy your curiosity about what we do and how we do it, but it will tell us both if our conversation is worth pursuing further. All discussions, of course, will be held in the strictest confidence.?