Structure the sale process to protect your
confidentiality
Confidentiality
agreements are one thing but there are other practical strategies
you can employ in parallel. Be careful who you engage with
- only deal with acquirers you judge are approaching the process
seriously. In addition, you should only release the information
about your business that would be normal as part of the sale
process.
Business sale: get to the offer stage quickly
Whether buying or selling
a business, an offer letter helps focus the mind and provides
a platform from which to proceed. It’s in no-one’s
interest to put a huge amount of effort into a business
sale before both parties can see an offer that has a good probability
of proceeding.
Business valuation: understand the fine print
Make sure both sides understand
the caveats and protections of any initial offer. Both buyer
and seller need to understand exactly how the headline offer
is made up (cash, shares, deferred consideration, earn out).
Both sides also need to understand the detail of usual protections
around working capital, the treatment of surplus cash and balance
sheet values.
Carefully manage the information flows
It helps both
sides if information requested is supplied in a format that
is easy to understand, simple to interpret and supports the objectives
of the sale process. Sounds like common sense but if I had
a pound
for every garbled sheet of management accounts I’ve been
asked to interpret as part of a sale process…! In addition,
it is helpful for all sides if the business for sale has a
record of hitting, and continues to hit, its targets. Not managing
to
hit targets at a key point in the sale process has to be the
most common reason for business sales floundering. It doesn’t
help the acquirer and it doesn’t help the vendor.
Understand the other’s position
What are their
alternatives? What are your alternatives? If selling, consider
the merits of bringing in other buyers. If acquiring, make
sure you are considering a range of potential acquisition targets.
Get the future relationship right
Most business transactions
involve some transition provided by the departing directors.
A key part of the process is understanding the other side’s “hot
buttons”, and structuring relationships so that both
sides have incentives to deliver after the business sale is
completed.
Make sure the sale process doesn’t drag
The process
of selling a business can absorb more time and energy than
it should, resulting in the costs of your advisors increasing
and/or
you being distracted from your business. Tactics here include
making sure there is clear and early agreement regarding how
the selling process should unfold and applying the resources
to make sure you are delivering on your side of the process
bargain. The process of selling a business can, itself, represent
the
initial steps in a trust building exercise which helps as you
enter legal negotiations.
Manage your corporate finance advisor
As a practical point, it is wise to structure the project so
that most of the effort of your corporate finance advisor
is reserved for the latter stages of the process, when the
offer looks more deliverable. You can also agree, where possible,
fixed
or success fees with advisors.
>choosing
your corporate finance advisor
Mark Robson of Keen Advice is a corporate finance advisor specialising
in buying and selling businesses, mergers and acquisitions.
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