The first 7 things to do when selling your company
Selling your company can be quite complex.
Before you even consider entering a process, it is worth considering a few fundamentals, getting some objective advice, and dealing with items that otherwise have the potential to bottleneck you later.
This blog post covers some learning points on the steps to take early on. The focus is on the practical ways you can 'cut to the chase' on key areas, rather than providing a how-to guide. There is some logical sequence to the steps, though some can be taken in parallel.
1. Develop a hypothesis for the ideal outcome
What do you really want from the process - especially with respect to the individuals in your leadership/ownership group?
For example, where would you like to end up in the continuum from a 100% sale to a larger (trade) buyer with your firm merged into theirs and your founders leaving shortly after the deal, to a minority investment to buy-out one of your founders with the rest of the firm 'business as usual'?
What are the key objectives from the point of view of your principal stakeholders?
Is it critical where the company ends up, or is it more about hard cash?
Get any major disagreements aired and on the table for discussion.
2. Understand the Process.
Meet some lawyers to do this - probably your own usual firm if you have one, plus one or two others that specialise in corporate law / M&A.
Be honest that you are early in the process of considering entering a process, but open that you are speaking to other legal practices too. On this basis, a good firm should be happy to meet with you gratis - as part of their business development process - and give you a decent overview of the process they would envisage. Ask lots of questions on the process, and ask them to cover deal experience in your sector and give an indicative quote for the work.
3. Get An Estimated Valuation Range
Similarly, meet with financial advisors - e.g. corporate finance firms - to get a view on the value of your business and whether it is indeed sellable.
If you can find a boutique or two that specialises in your sector, include them, otherwise select based on size of deals they do and reputation (if you can get at it).
Again, be honest on your stage in the process and level of commitment. Ask them to explain their process, and provide an indicative valuation range.
A well-organised firm that wants your business will have prepared:
- deal comparables - prices and multiples paid for similar companies
- information on deal structures - ie. whether you'd expect all cash at deal completion or deferred payments linked to ongoing performance
- buyer groups / example buyers.
- their fee quote and the extent their fees are dependent on success / the price achieved
Tell them you expect these when you set up the meeting. You will probably need to provide some high level financial data in advance. Tell them also if you already had any approaches.
If the advisors you invited won't do the above, consider someone else.
When you meet, don't bother asking if its the right time to sell, as the answer will always be yes.
4. Assess your fitness for sale
Ask your favourite lawyers from step one for a list of critical legal tems for the sale. They will already have standard due diligence lists for your type/size of business - see if they can prioritise that to 'day one' items or long lead time items.
Make a rapid audit of your capability to deliver against the critical items list and / or what particular issues might arise (for example: resolving any disputes, effecting any change of control in contracts).
To keep a lid on confidentiality, this exercise can be labelled a 'documentation audit'.
5. Sort out shareholdings, options, tax planning
If you have a complicated ownership structure, or need to diversify ownership of shares - e.g. by issuing options that vest on sale, now is the time to act. If you only consider this after starting a sale process, the tax position can be severely compromised.
6. Make some short term improvements
Fundamental to a successful sale is always good ongoing financial performance - at least as good as any plan you present to buyers. Consider if there are any areas of your business that can be improved. For example, can you add extra emphasis to your sales efforts to existing clients, or rigour to your business development pipeline.
Equally, your business reporting (e.g. financial results, booked workload) will come under scrutiny and stress. Can you make improvements to your management processes?
7. Decide roles for the sale process
A sale can be very disruptive. Is there a way to divide-and-conquer, so that a critical part of your team remains extremely focused on the day-to-day operations, rather than all your leaders being sucked into the process? For example, can you make early promotions, or otherwise back-fill roles?
Reconsider your 'ideal outcome' hypothesis
The steps above are primarily about learning. If you've reached this stage, and want to progress, now is the time to re-consider your objectives and ideal outcomes. Meet or follow-up with advisors if that helps - ask them to point you to references and discuss their experiences.
Follow-through on actions to improve your business, as appropriate, and move forwards to the stage of detail planning the sale.