When considering taking their company to market, many business owners’ second question after asking how much their business is worth is asking how long it will take to sell their business. The sale of a business, particularly larger ones, can take up to 12 months or more from the date on which the initial marketing campaigns to interest buyers begins.
The sale of a business is a complicated, multi-stage process involving not only you and your acquirer but also the professional advisors representing both sides.
In this article, we examine:
● prepping your company for sale
● the process of getting your business ready for market,
● the initial two month marketing campaign
● how we qualify expressions of interest
● the importance of creating a time-limited bidding environment
● the production the letter of intent, the due diligence process, and the completion date
PREPPING YOUR COMPANY FOR SALE
Many business owners now prepare their business for sale two or more years prior to contacting an M&A expert. We understand and respect the motivation for doing so.
They often prepare their business for sale in two different ways:
● ensuring that they keep all their financial and operational records up to date and
● trying to make their business more sellable by identifying and correcting perceived issues.
BETTER AND REGULAR RECORD KEEPING
Business owners more than ever appreciate the volume of documentation, paperwork, and statistics they need to produce for acquirers when they put their businesses up for sale.
As a result, they begin to prepare their business for investigation by acquirers and their professional representatives long in advance. This is an approach we would strongly recommend not only for the sales process but in promoting better governance within your business in general.
MAKING YOUR BUSINESS MORE ‘SELLABLE’
Business owners also use this time to launch new products and services, to branch out into different markets, to expand their geographical coverage, and so on.
The reasoning behind this is that, by making the business as profitable and efficient as possible prior to taking it to market, they will attract more buyers and the increased number of buyers will be willing to pay a premium for a company in its leanest possible shape.
Although this may make sense to you as a buyer, you may spend two to three years on this business transformation project and the premium you achieve on the sales price may not be worth the time, effort, and investment you’ve expended.
Why is this? It’s because most buyers are looking for businesses which they and their management team can improve themselves. And it’s a near certainty that they would improve your business in a different way to the way that you might choose.
TAKE ADVICE BEFORE TAKING ACTION
While we would strongly recommend indexing and regularly maintaining all of the documentation, paperwork, and statistics potential acquirers would want to see, please contact us before embarking on a company-wide transformation project.
We will advise you, based upon our experience of transactions we’ve worked on which have completed, about whether your proposed transformation project would likely mean a significantly higher sale price for you or not.
Where we believe that it might do, we’ll estimate that post-transformation premium so that you can make up your own mind about whether you should take your business to market now or later.
However, please don’t interpret this statement as meaning that you shouldn’t try to increase revenue and profit with your existing structure – increased revenue and profit will result in a higher sale price anyway.
THREE MONTHS TO READY FOR MARKET
Before you appoint IBA Corporate as your M&A advisor, we will have already met you in person, normally at your business premises, and we will have given you an indication of what we think you could sell your business for.
When you do appoint us, we’ll advise you first on the documentation, paperwork, and statistics you will most need to maintain and update to help the sales process along. We’ll also use those documentation, paperwork, and statistics in planning both the types of buyer we’ll target and the marketing campaign we’ll run to reach and persuade those buyers.
The information you provide us with will also alert us early on to any potential minor issues which may affect the likelihood of a sale or which may negatively affect the price a buyer is willing to pay for your business. Our pre-market team and your account manager will then work with you to correct and resolve as many of these issues as possible.
Once this work has been completed, we’ll run through the material prepared so far and then make any financial requests for documentation, paperwork, and statistics as we get ready to take your company to market.
TWO-MONTH MARKETING CAMPAIGN
During our initial three-month research period, we identify the types of buyers most likely to be interested in purchasing your company. Our advertising team will then source the contact data of these buyers in preparation for the launch of the marketing campaign.
Following consultation with you and the company’s internal copywriters, we then produce the teaser documents to elicit initial interest in the buyers we’ve identified. We also create the confidential information memorandum we send to those buyers once they have signed a non-disclosure agreement and they have proven that they have the funding available.
When everything is ready, we launch a full marketing campaign. Our marketing campaign is intensive and focused using the following methods of outreach to selected buyers:
• Database of interested buyers – contactable by phone, postal mail, and email and categorised by the type of business they’re interested in buying, their available funds, and their potential motivation for purchasing
• Network of accountants, solicitors, and private buying groups – we work with hundreds of accountants, solicitors, and private buying groups with their own thoroughly-researched databases of interested buyers
• Private equity groups and search funds – in addition to family offices, these organisations are becoming increasingly prominent purchasers of businesses
FOUR MONTHS TO QUALIFY EXPRESSIONS OF INTEREST
Different buyers respond at different speeds however, for most buyers, a period of four months is long enough for them to decide whether yours is an opportunity they would be interested enough to enquire about and then pursue for more information.
Within a month, we will present you with a list of potential acquirers seeking permission from you to release your confidential information memorandum to them. For the potential acquirers you select your M&A advisor to engage with, there will be an ongoing exchange of information between you and those potential buyers intermediated by us.
Working with you, we identify the acquirers whose interest seems to be the most genuine and the strongest. We then advice you to whittle down the number of enquirers you continue to engage with to a second and final round.
CREATION OF A BIDDING ENVIRONMENT
For those acquirers invited to take part in the second and final round of pre-bid engagement, we then prompt them to make preliminary bids for your company. Some bidders are likely to want to meet you and to visit your premises/headquarters before bidding. A representative from IBA Corporate will be present at these meetings advising and coaching you on how to handle questions and how to maintain the bidders’ interest.
It is in your interests to keep as many bidders interested as possible during the late stage of the negotiation because what appear to be strong buyers earlier on in the process may drop out unexpectedly. Other bidders seemingly less keen on your company may be keeping their powder dry as much as possible in the belief that appearing less interested may mean that they pay a lower price for your company.
At this point, bids are invited from the remaining parties. In most cases, not all parties will bid however our aim will be to achieve at least three bids from different parties. You can then compare different parties’ bids against each other, rejecting some and inviting those bidders to improve their offer.
Once final bids have been received from all remaining parties, your IBA Corporate representative will examine the finer details of each bid and they present a precis on each one to you so that you’re absolutely clear about the price and terms being offered.
This part of the process is intensive and it will require you to commit as much time as is needed to it as well as the closest possible attention.
LETTER OF INTENT, DUE DILIGENCE AND COMPLETION DATE
If you make a positive decision to accept an offer from a bidder, your solicitors and accountants (your professional advisor team) will begin liaising with your acquirer’s professional advisor team to draw up a letter of intent (sometimes called “heads of terms” or a “memorandum of understanding”).
Assuming the conditions set out in the letter of intent by your chosen bidder are acceptable, the process of due diligence begins. This may take up to 3-4 months (or longer depending on the size of your business and the complexity of its operations) assets you’re selling takes place.
ARE YOU READY TO SELL?
Having been through dozens of successful sales with clients over the past few decades, it’s important to get every aspect of the marketing and selling process right. Even following the exchange of the letter of intent, there are still significant obstacles in the way to get to completion team – our deal progression team works with you, your acquirer, and both sets of professional advisors to ensure the quickest, most favourable, and most friction-free transition from the agreement of a deal to completion day.
For an initial consultation on the sale of your business, please get in touch with our mergers and acquisitions team by phone, by email, or by using the contact form on our site.