The process of selling a company

Selling a business is usually a long and a complex process, it can take several months to prepare a business for a sale. Once the seller of the business gets in contact with the buyer, the sale is usually completed within a period of three to six months.

The sale of a business starts with a preparatory phase, which moves into an active bidding phase, a due diligence phase, and ends with final negotiations. In the process of selling a company, it is advisable to hire a financial advisor experienced in mergers and acquisitions.

As with any sale, it is important to have a clear objective before selling a business. The owner has a wide range of options for proceeding. You can find out how companies are acquired and merged here.

Key advisory activities in a structured sale process

Every sales process should be structured for optimum efficiency. Each business is unique and requires consideration to determine the appropriate structure. In determining the structure, the owners are usually advised by a qualified person – a financial advisor – who also needs the effective involvement of the company’s management. However, in any sale of a business, the following activities are key:

• Preparation of the marketing documentation and coordination of the sales process
• identification of potential investors
• Execution of the active phase of the proces
• Negotiation support

Preparation of marketing documentation and coordination of the sale process

The seller usually involves the financial advisor in the sale of the company in the first set of activities. In this phase, the object of the sale must be precisely defined with the aim of optimising the results for all stakeholders. The financial advisor will prepare guidelines and workflows with a clear transaction plan, including a timetable and all necessary process documentation. He/she will also ensure the preparation or adaptation of marketing materials. Typically, we are talking about a “teaser” document, an »information memorandum« and a »management presentation«.

Identification of potential investors

In order to make a profitable sale, it is first necessary to assess the interest of players who are active in the market and who may not have been known to the sellers before. As part of this, the financial advisor will prepare a list of potential investors to be approached later in the process. He will also advise on the appropriate manner and timing of approaching potential investors with a view to selling the business and on other activities that have an impact on increasing the competitive pressure between them.

Execution of the active phase of the sale of the business

The execution of the sale of a business represents the most complex part of the sale process. The financial advisor will provide support to the sellers with a view to minimising the burden on the ongoing operations of the business. He or she will normally take over all communication with potential investors and their advisers, inviting them to submit non-binding offers (NBOs). He or she will collect offers and advise the sellers on a shortlist of investors that it is reasonable to include in the due diligence phase.

The due diligence phase can be quite burdensome for the management of a company. It is therefore important that the financial adviser prepares well for it, collects the key documentation of the company and manages the data efficiently in a virtual data room (VDR). During this phase, there needs to be proper coordination between the investors, their advisers and the company, including the establishment of clear rules on the acceptance and response to investor queries by the company. The content of explanatory meetings, company visits and, very importantly, management presentations should be coordinated. At the end of the execution process, the financial advisor also takes care of obtaining binding offers (BOs) and advises on the selection of one or more investors suitable for the final negotiations.

Negotiation support

Negotiations are one of the most important stages for the success of a transaction. Often the adviser will act as a “shock absorber” between the sellers and the buyers in overheated negotiations. He will also support the sellers and their legal advisors in drafting the sale and purchase agreement (SPA) and other legal agreements that need to be concluded in the process of selling the business.