After you decided that now is the right time to sell, you have your value story ready and hired advisors, it is time to go to the market. Next to your internal deadlines, also investors have deadlines (e.g., a date to present the acquisition to their investment committee). That is why you need to be fully prepared when you start contacting potential Buyers.
Once potential Buyers or investors are contacted, the process turns into a high-speed train: once started it cannot easily be stopped or slow down.
Sell side documentation is ready
This means a Teaser and a Confidential Information Memorandum (CIM), but potentially also sell side reports (such as an Excel Fact Book or Financial Sell Side Report prepared by an external advisor). Click here for a template of an Excel fact book.
The financials and conclusions in all these reports should be consistent. If the CIM presents a different EBITDA than the sell side report this raises a lot of questions and generates uncertainty for potential Buyers. Make sure all your advisors communicate to each other!
The virtual data room is populated
Next to having adequate and sufficient sell side documentation, be sure that the virtual data room is populated with the minimum info. At minimum the data room has to contain information regarding:
- Historic financials (up to 3-years back), such as trial balances, financial statements and break-downs of key accounts (sales, inventory, receivables, payables, operational expenses)
- Tax returns (up to 5-years back)
- Corporate documentation, such as: incorporation documentation and shareholder minutes
- Monthly or quarterly management reports
- List of assets, intellectual property, equipment and employees, including employment terms
- Key contracts with customers and suppliers
- Other relevant contracts, such as financing or leases
- Legal structure of your business and organizational chart (description and responsibilities per function).
- Where relevant, overview IT infrastructure and environment, pending legal or environmental claims.
Take your time when preparing the data room and make sure all information is understandable, easy readable, not confidential or commercially sensitive and internally consistent (financial breakdowns need to reconcile to the numbers in your financial statements).
Prevent uploading different versions of files due to errors in a previous version. This only frustrates the process and potential Buyers lose confidence in the internal control environment of your Company. If not fully into details yourself, make sure that your CFO, Finance Manager, legal counsel or accountant checks all files, knows the purpose for which the files will be used and understands the importance. While you know your business in and out, a potential investor does not and he needs to understand the files provided without any context or explanation.
Prepare a Management Presentation
Once potential Buyers had a first look at the information provided they will want to have a Management Presentation. During this presentation you need to elaborate on your business, its strategy, products, customers and most up-to-date (financial) performance.
Know the value drivers of your business, its strategy, business plan and its SWOT matrix, as the Management Presentation should include all these topics.
Generally, a Management Presentation takes half- to a full day. It includes your presentation of your business, but can also include a presentation from the potential investor outlining their plan with your Company. If relevant, investors will want to see your factory or office. The day is closed with an informal dinner where the team of the Buyer and your Management Team has the opportunity to get to know each other.
Make sure you do several “dry runs” of your Management Presentation to be fully prepared and aligned on all talking points.
Your key team is ready, aware and available
A due diligence is an intensive process, with potentially multiple Buyers and advisors performing due diligence and asking a ton of questions. This is too much to handle alone. The questions and requests will be very detailed and require need of key employees in your business. Ensure your employees are:
– available (no planned vacations, year-end financial closing, etc);
– committed (consider a transaction bonus in case of successful completion of the deal); and
Depending on your role post-acquisition the last item can become crucial for a Buyer. If your plan is to sell your business and no longer be involved post-acquisition ensure that your management team leads most of the Management Presentation and that they are fully confident in the overall strategy and business plan of your Company. At the end, it is them who are responsible and need to face the consequences if the forecast is not realized.
If your Management Team is not confident your forecast is realistic they will inform potential investors as to secure their position with their new bosses. Involve your team in the preparation of the forecast and ensure the forecast is challenging, but realistic. Your Investment bank or M&A advisor should not be the owner of the forecast.
Ensure you are ready for the process and negotiations. Know the price of your Company and do not be afraid to defend it. However, negotiations need be objective and based on facts and numbers, while understandably, emotions have no place in this process.
Keep running business as usual
During the diligence process it is easy to get completely focused on the potential Buyers and their demands. However, during this period it is extremely important your Company keeps running its business as usual.
A sales process can vary from several months to more than a year. If in this time you lose focus on your business and revenues decline as a result, this could be a deal breaker.
As part of every diligence there is a so-called current trading update. As the process takes long Buyers will ask for an update of the financials. For example, if you have provided your financials up to December 31st a Buyer will ask for your financials up to March 31st. A Buyer will also ask the financial results of the same period last year and your budget of that period. If you had set a very high budget with the hopes of increasing the enterprise value and now comes out you are behind that budget in the first quarter a Buyer assumes the budget as unrealistic and unachievable (with all consequences to purchase price that entails).
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