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If you’re thinking of selling your company, you should know what to expect before you begin. The process of selling a company isn’t that complicated, but you’ll want a proven team from start to finish to achieve the best outcome. Too many times we hear of business owners not employing a process and then wondering why “the deal feel through” or the valuation offers were below expectations.

Ours it isn’t much different than planning a trip. Maybe you have a bucket list trip to another country in mind.  You wouldn’t just show up at the airport and get on any plane and hope you would someday arrive at your destination. You would make a travel plan first, then purchase your tickets, pack your bags and go with the destination as your goal.   

The process for selling a business offers buyers a comprehensive presentation for understanding your business’s value and growth opportunities.  It also is a logical course that prepares you, the seller, for the transaction. In combination, the comprehensive presentation of the company’s history and the future opportunities are what ultimately lead to a valuation and transaction that meet both the seller’s and buyer’s goals.

The sell-side process consists of 3 steps: Deal Preparation, Active Marketing, and Deal Closing.

Read further to understand how the process takes you, a business owner looking to sell, through a timely and successful conclusion.

Step 1 – Deal Preparation

Preparation is the critical foundation of the entire deal. The resources invested at this phase are valuable through completion. This is when your investment banking team will outline what is needed and required of you, the seller.

Step 1A- Client On-Boarding

Now is the time to share company details with the investment banking team so they can better understand how your company fits into the market segment and what makes it attractive to buyers.  The team will estimate the target valuation range for your company and present it to the ownership group.

Enterprise Value

When reviewing a value range, you will likely learn about areas where the business value can be improved if certain enhancements are made. Based on your desired timing and the anticipated increase in your business valuation, you may wish to invest the time and resources to achieve the increased valuation. Alternatively, it may be that these opportunity areas are best addressed by the future owners of the business. This is a decision that you review with your investment banking team.  If you decide against making the changes before going to market, then these opportunities should be presented as value growth areas to potential buyers.

The critical issue here is to be sure the enterprise valuation range meets your needs, with special consideration given with an eye towards tax implications.  Involve tax advisors and wealth managers to understand the full impact of the valuation against your future needs and life goals.

Settling on your company’s value range is required before moving forward with the process of taking your company to market. We have seen situations where business owners make the mistake of brushing past the valuation hoping that it will all work out in the end. If the valuation range doesn’t meet your needs, then this is time for you, and your management team, to identify value enhancement opportunities and start working on that list.

Deal Team

Creating a Deal Team is very important and should include your CPA, Tax Attorney, and Wealth Manager. And if you haven’t already found an M&A Attorney, then you should engage one as well.  We believe that it is best when the deal team is working together from the beginning of the selling process. Let’s look briefly at each role within the ‘deal team’ and why they are so important to a successful deal.

• CPA- Your CPA has knowledge of the company’s financials and tax/regulatory filings. We suggest that you have audited financials for the 2-3 years prior to going to market. These documents provide a verified basis for the financial presentation to potential buyers. The CPA is helpful throughout the process and especially towards the end, during due diligence. While you are the owner of the business and know it best, unfortunately, most buyers will prefer to hear from the company’s CPA when looking for financial insights.  We believe that it is important to have your CPA involved.
• Tax Attorney – A Tax Attorney is also vital for providing advice, specifically for tax issues.  Beyond the CPA, a Tax Attorney will know all the current tax rulings and regulations. Important to note that tax attorneys are usually very busy, even more so towards the end of the year.  You don’t want to delay a deal structuring or closing due to a lack of a tax attorney.  Do your best to involve them from the start of the process and so that they are on board with the selling process.
• M&A Attorney – Your M&A Attorney speaks the M&A legal language critical to a successful transaction. In most cases, your legacy business attorney will not have the experience and skills to efficiently navigate the details involved in a purchase agreement. We have seen general business attorneys hinder a closing because they aren’t comfortable with the transaction process or legal documentation, which is not surprising. A specialized M&A Attorney understands what is reasonable and customary in a transaction and will help to facilitate a deal closing.
• Wealth Manager – The last team member required for your deal team is a qualified Wealth Manager. Ideally, the Wealth Manager will be involved from the beginning of the process. Basically, if we have a valuation range that doesn’t meet your financial targets, then we need to work on improving the value as we discussed earlier. The mistake that we have seen with sellers is that they initially accept a value range for the sale of their company without consulting a Wealth Manager. Then at closing, they realize there is a value gap and must either modify their expectations or stop the deal process.  Neither of these are desirable outcomes for you, the seller.
• Investment Banking Team – The Investment Banking Team leads the sell-side engagement and is responsible for keeping the process moving to a close. At CDI Global, we like to assemble a complementary team of two bankers and an analyst for most engagements. The lead banker leads the team and is the primary client/buyer interface. The second banker works behind the scenes on gathering materials, working with the client to secure additional information as well as filling in for the lead banker when scheduling conflicts arise, thereby keeping the process in motion. The analyst will review data, upload and manage the Virtual Data Room and update the materials for review and approval as directed. The depth of the team creates more deal horsepower, faster action on questions/issues, and an overall better result for our client.

Step 1B – Marketing Preparation

This is where we assemble the selling materials for your company.  These materials include a One-Page Teaser, a Confidential Information Memorandum (CIM), a Non-Disclosure Agreement (NDA), and all the supporting documents in a virtual data room (VDR), so qualified buyers can fully understand the buying opportunity as presented. We’ll review these documents in more detail now.

• One-Page Teaser – A One-Page Teaser (Teaser) is sent to all parties on your client-approved buyer list (which is also prepared at this time — and with your involvement). The Teaser is the lead marketing piece, designed to generate interest among potential buyers.
• It’s important to note that while we have an internally discussed valuation range, we recommend that you do not place an asking price on the Teaser.  This because the market will ultimately decide the value of your business.
• Your desires regarding the deal structure and any other special considerations should be presented so potential buyers are informed from the start and can evaluate their level of interest accordingly.
• Confidential Information Memorandum (CIM) – The CIM is a lengthy presentation that shows your company, the industry, and your company’s position within the market.  The CIM also presents future growth opportunities. Buyers always seek a foundation for growth when buying a business and sharing future business opportunities will drive the valuation and uphold the financial assumptions.
• All investment bankers prepare a CIM, but at CDI Global we like to take this process further.  During this preparation phase, we begin to assemble the Due Diligence documentation, that we expect will be requested in the final phase, the Deal Close.  We realize that there may be gaps in information required for the close because, after all, no company is perfect.  If you and the management team are aware of these gaps at the beginning of the process, any issues can be resolved before Due Diligence. This will minimize confusion regarding the deal documentation and lead to a timelier close.
• We do realize that no company is perfect, and it is important that everyone works as a team and be organized to successfully drive optimum transaction value. Remember that missing or conflicting information is usually perceived as a risk by a potential buyer and risks will, most likely, lower the deal value.  You don’t want to give a potential buyer the opportunity to reduce their offer as a result of conflicting or missing information.  
• Non-Disclosure Agreement (NDA) – We use fairly standard NDA based upon our experience. Your M&A Attorney should review this document and you will need to approve it prior to going to market. Every approved potential buyer will execute the NDA prior to receiving the Confidential Information Memorandum.
• Other Supporting Documents – As noted earlier, we try to assemble an inventory of required information before going to market.  By having more information presented earlier in the process, we can identify or resolve information gaps and conflicts while driving value via a comprehensive presentation

The time to drive value is early in the sale process. No buyer will offer more money after they agree upon a valuation because they discovered some great details during Due Diligence.

We like to use a Virtual Data Room (VDR) once the materials mentioned above have been reviewed and approved.  The VDR allows potential buyers to view more information which assists in their understanding of the company.  When this step has been finished, we are ready to go to market. This brings us to the second phase of the selling process – Active Marketing.

Step 2 – Active Marketing

Active Marketing is the exciting part of the process and what most people think of when they plan to “sell their company”. This phase involves sending out the Teaser, conducting introductory calls with potential buyers, and setting up management meetings. At this juncture, it’s critical for the entire team to be in the “selling” mode. A passive approach in this phase is rarely successful. Let’s take a deeper look at the next two steps and how we drive interest and valuation.

Step 2A – Market Launch

Here is when we begin marketing the business to the approved Buyer List. We send the Teaser and the NDA to potential buyers. In some cases, we’ll have more than one name per organization in order to get attention for our deal. We will also personally contact the highest probability and best-fit buyers based upon the industry research.

Investment Banking Team Follow Up

Interested buyers will complete the NDA before moving forward. We then provide the CIM and we schedule a follow-up call to explore levels of interest and answer initial questions. At this point, we begin to understand the buyer’s reason for reviewing the opportunity. We’ll seek to understand industry experience and knowledge as well as suitability in order to determine if the potential buyer can meet your expectations.

Once we have completed the initial conversations, we involve you and your management team. We then organize conference calls with each best-fit potential buyer. These calls typically last an hour and follow the outline of the CIM. Management calls provide the opportunity for both parties to get to know each other and ascertain probable interest.

Buyers may also request additional information at this time. We will aggregate the questions from each buyer team and provide all of the responses and relevant documents in the VDR for viewing. This approach provides all prospective buyer teams similar information. It also lets buyers know the questions their competition is asking and topics that they may have missed that tend to drive deal valuation.

Indication of Interest (IOI)

This step is for those seriously interested potential buyers. The IOI is a non-binding document that presents the transaction value and structure. It also includes a buyer overview that details why they believe the transaction would be a good fit for their group.

Importantly, the IOI is the ticket to the in-person, on-site management meeting. If the valuation or fit is not aligned, then there isn’t any reason to have an in-person meeting. If there is a good fit, but the valuation isn’t aligned, then we’ll help the buyer understand the value range of comparable transactions and see if they wish to revise the IOI structure and/or valuation. That being said, tire kickers or bottom fishers need not apply!

During in-person meetings, you can expect that you and your management team will meet the buyer team and give them a tour of your company facilities. The goal is to show off the business while minimizing the business disturbance that visitors can often create. We like to have everyone sit down after a facility tour and review the visit while getting to know each other.

Step 2B – Deal Review

Once the management team meetings have taken place, the potential buyers will be asked to submit a Letter of Intent (LOI). In most cases, the LOI is an evolution of the previously submitted IOI but contains more details on the structure, valuation, financing, and closing dates. All are critical areas to negotiate and understand.

The selected LOI becomes the exclusive buyer and all other conversations must cease until the deal is closed, or, the LOI timing expires or is withdrawn. Selecting the LOI is critical as you, the seller, are pausing all other potential buyers to focus on closing the transaction. From this point, we move onto the final phase of the process of selling a company; the Deal Closing phase. 

Step 3 – Deal Closing

This final phase in the process of selling your company is the most tedious phase and, oftentimes, the most annoying. Step 3 includes Due Diligence and Deal Completion; Let’s focus on each step below.

Step 3A – Due Diligence

In Due Diligence, the buyer will be submitting all types of information requests. Be aware that fatigue begins to set in for everyone and emotions can run high at this time.  As investment bankers, we can minimize the stress and additional time required at this stage, especially if we properly stocked the VDR during Step 1 at the beginning of the process.

We recommend a comprehensive buyer Due Diligence list upon the LOI execution. No one likes having to open the file cabinet multiple times looking for the same information, so your efforts to plan ahead improve the management team’s efficiency and responsiveness.  

Too many times, buyers ask for duplicate information during Due Diligence and this can be annoying, disruptive to the business, and time-consuming. One of the VDR’s values is that everyone can see the information requested and submitted. As such, redundant requests should be unnecessary, and the buyer’s deal team can operate more quickly and efficiently.

Step 3B – Deal Completion

The Purchase Agreement (PA) will be finalized as part of the deal completion step. The deal points will have already been agreed in the LOI which is the good news. Now it’s up to the attorneys to create the legal paperwork to formalize the agreed-upon terms. In most cases, the buyer’s attorney crafts the PA and presents it to you, the seller.

Often buyers wait until most or all of the Due Diligence has been completed to draft a PA. This is a cost management strategy that lengthens the deal timeline and can possibly frustrate your deal team.

In order to speed up the process, we recommend that you, the seller, work with your team to craft the PA in advance of the LOI step. By sharing the PA with everyone who intends to submit an LOI during Deal Review you accomplished three things:

• Kicks off the Deal Completion step since you, the seller, are not waiting for the buyer to submit the PA.
• Buyer comments will give you an indication as to who is easy to work with and who is going to be challenging. Those comments could be a key factor in choosing between two “similar” LOI’s.
• Lastly, presenting the PA speeds up the Deal Close phase so that you and the buyer can work on fine-tuning the PA, thereby compressing the last stage of the deal and getting to the close faster.

Upon Due Diligence completion and the PA agreement, it is time to execute the PA and agree upon formal closing date. In most cases, there is a simultaneous PA execution and deal close. In preparation for the closing, the buyer will create a flow of funds that all parties must approve, showing where the money is being deposited. Typically, you and the deal team are paid from the sale proceeds in one comprehensive set of wire transfers to everyone’s respective bank accounts.

Post-Closing Activity List

Post-close items are often overlooked or unexpected. While we have followed a process and have planned each step as efficiently as possible, not every item can be gathered prior to closing.  It is not unusual for the attorneys to craft a list of items that need to be completed in a reasonable timeframe post-closing so as to not hold up the actual transfer of the business to the buyer.

The post-closing list must be addressed by the agreed-upon dates to avoid any post-closing issues.

Summary

From past experience, we know a proven process is critical to successfully selling a company. As a matter of fact, we believe in the process so strongly that we openly share it with business owners and valued deal partners. We want you to know how we can professionally market your business and manage the process to a successful close.

We recommend you ask other investment banking firms about their process and see what kind of response you receive. If you don’t receive enough detail to satisfy your curiosity, then perhaps they aren’t the ideal partner for your company. Note too that anyone can create a process, but only those who have lived by it can do it well and across a range of industries and sizes of companies.

Remember, the bucket list trip that I mentioned at the beginning of this blog? That roadmap (process) is how you efficiently get to your destination – selling your company. 

We have a proven sales roadmap that is ready for your business.

John Illes

CDI Global Partner & Industrial Industry Co-Leader