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documentacion necesaria compraventa empresa

Documentation required in the purchase and sale phases of a company

If you are a company owner, you may have never considered your company’s sale, but it is a world surrounded by technicalities and processes that you may not understand.

As specialists in companies’ sales, we can help you understand the key documents you need in each phase of a sale

A company sale and purchase operation is undoubtedly a complex process that requires a team of consultants specialized in the company’s activity sector. Below, we detail the main phases of a company’s sale process and the necessary documentation for each of them, giving the key details on each of these stages.

Next, we will analyze the different documents necessary within each stage of the sale of a company:

Strategic analysis of alternatives.

The first step when deciding that a company is going to be sold is to analyze which process we want to carry out and carry out an analysis of it, as well as of the company to be sold.

Once you decide to sell your company and the type of transaction you want to carry out, the next step is to sign a sales mandate.

This document specifies what the costs derived from the sale will be for the sold company. The signing of this signifies the beginning of the sale process of the company.

Once the consultants start working on the mandate, the first thing they will do is request information about the company. All the information required will be essential for preparing the necessary documentation for the execution of the sales process.

The first document produced is usually the so-called blind teaser.

The blind profile (or teaser) is a document that includes the general characteristics of the company being sold but doesn’t contain any information that would make it possible to identify the company. This document is the first document that potential buyers will be shown to help them decide whether or not they are interested in buying your company. They are approximately two pages long, and contain general information regarding the company and its operations.

The blind profile includes a description of the main characteristics of the company, the reason why the owner(s) wants to carry out the sale, key financial figures from recent years in terms of sales, profits and debt, the expected growth projection for the next three years and the advantages that this operation can bring to the investor. In the blind profile, it is not advisable to include a price since you establish a limit before even the first negotiation.

Preparation of a sales notebook or company report.

After the teaser, the next document should provide more information about the company to potential investors (once they sign a confidentiality letter or NDA).This is the Sales Notebook.

This document will consist of six main sections:

  1. Executive Summary
  2. Vision of the sector and subsector in which it competes
  3. Study of the company, from its inception until now, analysis of threats, strengths, weaknesses and existing opportunities
  4. List of competitors, market share and competitive strategies
  5. Financial data
  6. Growth potential

The company’s sales notebook’s objective is to provide potential investors with all the necessary information to know if the investment may be interesting for them or if, on the contrary, they should not continue participating in the process. The notebook should reflect the reality of the company, as well as its most positive aspects.

The key to this phase lies in the professional presentation of the information, establishing transparency and seriousness parameters. Unlike the blind profile, this document gives the necessary data to identify your company and provides potential buyers with more details.

Assessment report and contact with candidates.

Once you have the blind profile and the sales notebook, it is time to know how much your company is worth so that you can start negotiating the sale; this process is called a valuation and will result in the creation of a Valuation Report.

The preparation of a valuation report is an essential job; it can enable a better negotiation with investors and help you to maximize the price of the company by having logical and worked numerical arguments to support your case. Furthermore, evaluating your company will help you know where you are starting from, your company’s position in the market, and its value.

Business valuation is a necessary activity in most corporate operations.

Once you have all these documents, you will have to decide which candidates best suit the proposed operation; for this, a Mapping of potential counterparts is carried out, made up of two lists (a longlist and a shortlist) of investors who potentially fit the purchase of the company.

A mapping of potential counterparts, a list of companies to contact, is the most feasible for this search. You will have to find all the candidates whom may be interested in purchasing your company. This mapping will be our pillar upon which the entire search and negotiation process will be supported.

At this time, it is essential to have good advisors who look for and find the best buyers for your company since it is a crucial moment on which the sale agreement that is made totally depends.

Often, the best buyer is not the most obvious, such as a domestic buyer or a competitor of yours, but a less obvious choice, like a company from a related sector, for example.

After creating the list of potential investors and having contacted them, the next phase is marketing. The first thing is to create a Confidentiality Agreement or NDA, which contains details about what information is confidential, which both parties are subject to. After this, interested buyers can receive the company’s Sales Notebook.

Next, interested investors will have to issue a first Indicative Offer or letter of interest. They will detail, without legal validity, the offer that they propose to the company, including information such as the price they offer, how it would be paid and the purchase deadlines.

An indicative offer can have a significant impact on an entrepreneur who until then had never considered selling his business, as Enrique Quemada, president of ONEtoONE explains;

A businessman once told me that, while he was in a meeting, a messenger arrived at his company and insisted that they had to personally deliver a letter to him. The businessman went out, picked it up, and read the letter. In doing so he came across an indicative offer on his business. He couldn’t believe it. “They want to buy me!” He thought. And he began to imagine what he was going to do next, what he would do with the money and how to tell his family about it.

Negotiation and Due Diligence Process.

Once indicative bids are obtained from the candidates, the agreement of intent – also called the Agreement of Intent or Letter of Intent (LOI) – is signed with the potential buyer with whom there is the best fit. This agreement of intent declares the commitment to begin a negotiation of the pending aspects of the deal that will eventually culminate in a definitive contract of sale. The seller’s strength is much greater before the agreement of intent than after; which is why it is essential to reach this point with the highest level of understanding and trust possible.

The agreement of intent sets the basis for the negotiation and establishes a reference figure on the price to be paid. The points on which an agreement have to be reached are established, and time limits are set to close the negotiations.

Once the buyer feels comfortable with their offer and wants to take it to the next level, the so-called Binding Offer is made, an offer that does have legal value and indicates the conditions of the purchase that the investor offers your company.

After the agreement of intent comes the Due Diligence, the most sensitive part of the process, which consists of checking all the documentation and information previously delivered. It is a very complex process that requires a great deal of preparation on the seller’s part, mainly in correcting possible irregularities in management and ordering all the documentation correctly.

Once the first direct contacts between the parties begin, the negotiation phase begins. Depending on the level of negotiation, the negotiating parties can program a Data Room so that access to information for the different buyers is more easily managed by the seller. Finally  a controlled auction process is held with the participation of the shortlisted candidates with serious purchasing intentions.

Closing of the Sale.

Once an agreement has been reached, it is time to close the sale; thus, the so-called Purchase Agreement or SPA will be signed.

This document details all the information about the transaction and is one of the most important documents in the entire process since it includes all the conditions under which the sale will occur. That is why it is essential to have a good team capable of achieving the best agreement for you and your company.

The sales notebook must include these sections:

  1. Description of the transaction.
  2. Terms of the agreement.
  3. Representations and guarantees.
  4. Limits on liability.
  5. Conditions.
  6. Annexes.

The process of selling a company is very complex. That is why it is essential to have the help of a company specialized in mergers and acquisitions, since they will take care of all the steps and advise the selling party on everything they need. Do not hesitate to contact us!

At ONEtoONE, we are characterized by the transparency, confidentiality, and professionalism with which we handle our clients’ operations. One of our best allies is the trust we generate through our work. Therefore, we encourage you to contact us if you seek advice for the sale of your company. And remember, confidentiality is the key to success.

The search for investors for the sale of your company

Every company has an optimal time to be sold, and it is vital to make an effort to know and be aware of it so as not to regret it later.

As advisors, we start working with a company one or two years in advance of a sale. We prepare it to improve its value, make it more attractive, attract more buyers, increase the probability of success, remove obstacles that would hinder the sale, and minimize the tax impact and equity consequences.

One of the main objectives of the preparation is to identify the critical areas for improvement, act on them, and reduce the potential risks that a possible investor currently perceives. The more attractive you make the company to the investor, the more you can ask for and the more you will receive for it.

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Reasons for the sale

There can be many reasons why an entrepreneur would consider the opportunity to sell their business.  Here are some circumstances that may make a sale or investor search desirable:

  1. For personal reasons: The businessowner is preparing themself for retirement, they want to do something different in their life, change of business or increase dedication to other more profitable companies that require more attention, due to health problems.
  2. For familiar reasons: Disagreements between family members over management, lack of interest or preparedness of children to continue leadership.
  3. For corporate reasons: Conflict of interest among shareholders, financial investors wanting to exit, different financial capabilities among partners.
  4. For economic reasons: The company needs a new injection of resources, technological obsolescence, lack of access to growth capital, receipt of a good offer for the company, the value of the real estate assets on which the company operates is higher than the value of the business.
  5. For competitive reasons: The entry of a powerful competitor, growth, relocation, loss of human capital, the company has maximized its potential in its market, the loss of essential costumers, a stage of peak value in the sector or the appearance of substitute products.
  6. For legal reasons: There are changes in the sector’s regulatory environment or tax and fiscal policy.

10 Keys to attracting investors

Having listed the circumstances that may lead an entrepreneur to sell their business or to look for investors, it is now necessary to list the ten key points that will help you to attract investors.

1. Understand what you want and what you are aiming for. Our objectives give us direction, but our expectations give us the strength to negotiate.

2. Fail to prepare, prepare to fail. 99% of success is due to preparation. During the process, you must work out the opportunity it represents for the buyer: What are their economic motivations? How much do they expect to earn from your company? What do they want it for? What do they intend to do with

3. Reach an agreement with the “best” alternative investor you have. If you lack alternatives, you lack negotiating power, and the buyer will take advantage of it to get constant concessions. How do you know if that buyer is the right one? Is it the one for whom your company creates the most value or who can pay the most for it? Only a sound methodology for searching for alternatives will allow you to find out.

4. A good negotiator asks a lot, talks little and listens well. Share information, but above all, get relevant information. Ask twice as many questions as your counterpart, request clarification of answers and summarize what they have heard to check that they have understood correctly.

5. A good negotiator builds trust and never lies. They do not create expectations that they will not fulfil and they keep their promises. They earn the respect of the other party during the process because they are reliable.

6. Create the optimal conditions for a good “negotiating framework” before meeting the other side at the negotiating table. Having the right people at the table achieves the above. It would help if you did a mapping of the interests of all the parties involved in the negotiation. Is there anyone who might torpedo the operation because they have other interests? How can they be convinced to help?

7. Identify the actual decision-maker. In addition to the acquiring company’s interests, there are other interests to consider, including those of the people negotiating. You have to find out who is making the decision and their interests, their needs, and what they themselves are looking for. Do they have the authority to close a deal?

8. Show interest in the interests of the other parties. This will make them care more about your interests too, a win-win situation. Building empathy helps to create a favorable climate for negotiations. Be strict in your demands and understanding of the other parties. Negotiation is a game of information, and information gives you power. You should seek to understand their needs rather than their wants.

9. Power is a very relative concept. In negotiation, power will depend on your alternative investors and the alternative opportunities of the other party. Don’t forget that 50% of negotiation is emotion. You must understand and control your emotions towards the talks.

10. A good negotiator can make the pie grow, instead of fighting for the biggest piece. They maximize its value by helping both parties achieve their goal. The first step is to believe that it is possible. Negotiation is an information game, which is why the best negotiators focus more on receiving information than giving it. If you know how to dig deeper into the other party’s needs, you will discover things that are very important to them and do not entail a high cost for you; you can exchange them for things that are essential for you and that have little significance to them.

First contacts with investors

To embark on finding the best investor, the seller must have a team of specialist advisors who can advise and guide them throughout the process and help them make the best decisions. If a seller dares to sell their business without any help, they are likely to fail.

As a professional expert, the advisor makes the first contact with the potential buying company’s decision-maker. This person is usually, depending on the company’s size, the owner, the CEO, the Managing Director or, in larger companies, the Corporate Development Director of the relevant division.

Making a personal contact with an investor is not easy and requires a lot of effort:

  1. Identify them.
  2. Know how to overcome filters, be consistent in calls.
  3. Interest them.

When we speak, we outline the type of transaction you are proposing and why you see it as a precise fit with your company’s competitive strategy without ever identifying the company. If the investor is interested, a blind teaser is sent across.

If there is interest, their reasons for investing are analyzed, and an explanation of their investment capacity is requested. If they are not interested, we also ask why, as this will give us clues as to whether we are approaching the search for investors correctly.

If their response is positive, a confidentiality agreement is sent to you, guaranteeing the proper use of the information to be provided by the recipient.

This stage is slow due to the professional nature and lack of time for discussions and the significant follow-up effort required to get a personal interview with them. One reason for having advisors is that they free up the seller’s workload by taking care of the sales process themselves.

Once the signed confidentiality letter has arrived, and we want to move forward, we arrange a meeting for the delivery and presentation of the sales booklet.

For potential, foreign buyers, we contact them directly. However, we will also provide a blind profile of the company that we are selling to investment banks. Furthermore, we also have relationships within other countries to identify other companies or investors in their areas that we have missed.

The advisory team’s mission is to research potential investors and what their track record has been in other acquisitions: prices, multiples, payment formulas, as well as understanding the strategic rationale for how this acquisition would fit their growth process. It is also essential to answer the following questions: How has their company developed this year? What has been their trajectory and history? In which geographical areas are they present? Who are their customers and suppliers?  What is their growth strategy? Knowing how to answer these questions will give us the advantage of being able to improve exposure.

Investors for each stage of a company

Suppose you, as an entrepreneur, are looking for investors. You will need to approach different types of investors depending on your company’s stage of development, as shown in the following image.

  • Seed capital:

Seed capital consists of betting on a business idea when there is not yet a business structure. The idea of a new company is the result of an entrepreneur’s fascination, concern or obsession. The usual way to raise capital at this early stage of a new business project is to rely on family and friends. People who trust the founders, who believe in their ability to take their idea forward and are willing to support them and are aware that it is tough to find an investor.

  • Start-up:

Start-ups are companies that are starting to function, taking shape and attracting their first customers. In many cases, the founders have put in everything they have, the company is growing, and everyone is demanding more investment. The founders do not have the resources to finance the company’s growth; they have no support from financial institutions as they have no way of providing guarantees and they need investors to put up the money. Otherwise, the company will not be able to continue to grow.

In this situation, when the project is robust and well-executed,  new types of investor may appear:

    • Business Angels: Figures with an increasing presence in our country, usually a former entrepreneur or a private investor committed to investing in start-up business projects, with contributions of between 200,000 and one million euros. The business angel has the scope to achieve a higher degree of diversification with their equity by participating in different projects. In turn, it helps entrepreneurs to have access to a larger pool of funds for growth.
    • Pledge funds: These consist of a group of professional investment experts that bring together a few entrepreneurs in an investors’ club. They pay a fee to the club, and the professionals identify and select exciting investment projects.
  • Capital development

For a company to pass the start-up stage, at least three years must have passed since its foundation.

The company is now already a reality, as there is a growing business structure. Most commonly, at this stage companies generate less cash than they need to finance their growth. This is a natural phenomenon because companies first have to pay money to source products. To recoup the investment, they will have to sell them and wait to cash out, so the more they grow, the more they have to spend first.

If you do not find investors, your success will be the death of you.

This is particularly serious for companies with a low profit-to-sales ratio, as profits do not cover the funds needed to finance growth, and the more the company grows, the more the cash flow is depleted. If they want to continue to grow, they need investors.

  • Family office

It is an office created for the comprehensive management of a family’s wealth: this office takes care of its financial, real estate and business investments, its taxation, its succession, and its general financial planning.

Family groups that have sold companies will be looking to invest in other companies to benefit from reinvestment deductions. If a company has made capital gains on divestment, it will tax at 30% (general corporate tax rate). However, it can reduce this taxation to only 18% (saving tax on 12% of the capital gain) if it reinvests during the following three years in a company, purchasing a stake of more than 5%. This tax opportunity is a clear incentive for family offices to invest in other companies.

  • Leveraged transactions on mature companies

During this stage of the company’s life, growth is less pronounced. It is entering a phase of maturity, where it can even comfortably pay out dividends, with stable earnings generation.

At this stage, private equity funds specializing in debt buyouts appear as potential buyers or investors. These are funds that take advantage of the ability to leverage (also called leveraging) the company to offer a higher price to the seller.

Companies that generate stable profits and have little debt are of interest to these funds, as they will use debt as leverage to buy.

They try to put little capital and a lot of debt into the operation by offering as collateral for the banks the future cash flows that the acquired company will bring in. Predictable and recurrent flows are necessary for the bank to lend more money.

NEWCOs (New Company) facilitate purchasing operations.

The importance of having a business structure

The company does not necessarily have to have a closure stage. Once we reach the maturity phase, we must structure it for continuity over time.  To sell a company, it needs to have a business structure that allows it to be independent of its owner.

The company must have a life of its own. The founder or owner should be, albeit important, a passenger in the company. Only then does a sale to another group of companies or a management team accompanied by a private equity firm make sense.

This is relevant because, in many cases, the entrepreneur is the company. When they want to sell it, they do not realize that the company is worthless without them, because the entrepreneur themself plays such an important role that they take away the value by leaving.

When this occurs, there are two alternatives if the owner wants to leave the business and give it continuity. Either prepare the company for sale by providing it with a corporate structure or break it up by selling it in parts (machines, warehouses, stock, etc.) and terminating or indemnifying the contracts you have, whether they are labour or business contracts.

 

About ONEtoONE

At ONEtoONE, we are experts in finding national and international investors, and we know how to locate your best partner. Our investor search team, supported by the best and most comprehensive international databases and analytical capabilities, can identify and contact more than 300 investors worldwide on each transaction. We focus on your company by understanding the aspects that will help you maximize the deal’s price, once we locate those investors with whom you are most comfortable and who best value your company’s potential.

Bright future for Solar Energy in 2021

After the arrival of Covid-19, global energy demand in the first quarter of 2020 decreased by 3.8% relative to that of 2019, and global energy demand was set to drop by 5% in total for 2020.

As countries entered into lockdowns and global economic activity slowed, it was coal and oil demand that took the biggest hits, falling nearly 7% and 8.5% respectively from their 2019 levels.

In this scenario, renewable energies were the only energy source to not experience a decrease in global demand in 2020, as the rest of the energy industry struggled with the consequences of Covid-19.

Solar energy generation is by far the fastest-growing energy source, with just under 100,000MW capacity added last year alone, yet it currently only contributes 2% of global energy.

The Levelized Cost of Energy (LCOE), the average cost of generating electricity in a plant over its lifetime, for solar energy has plummeted 82% since 2010 and is one of the lowest generation source (together with onshore wind) far below natural gas, wind offshore, geothermal and nuclear.

The high reliability of photovoltaic (PV) technology and the expected long-term increase in the use of solar resources points to a bright future for solar energy and raises expectations for a return on investment in this booming industry.

Solar Energy Technological Developments

The main reason for the explosion in popularity of solar energy is that the associated costs have fallen drastically over the past few years. Between 2010 and 2019, the global weighted average LCOE of a utility-scale solar plant declined by 82%. As a result, the global average cost of solar energy generation has fallen from $0.378/kWh to $0.068/kWh.

The development of a new technology has undoubtedly contributed to this: Bifacial Module Technology.

Bifacial Module Technology

Bifacial module technology has actually been around since the 1960s, however it has only recently become a viable technology thanks to other, new technological advancements. Bifacial solar modules, unlike most mainstream modules currently, can generate power on both the front and the back sides of a solar panel, improving the energy yield by 10-30% depending on other factors such as location.

Although this technology is still fairly uncommon in the industry at the moment, its market share was less than 5% in 2017, it is widely expected to be an industry-disrupting technology over the next decade or so. An estimate from the International Technology Roadmap for Photovoltaic (ITRVP) predicts that bifacial modules will represent just under 40% of the market by 2028.

Bifacial module technology, the technology which enables a solar panel to use both sides of its face for energy generation, is expected to become mainstream over the next decade and can boost energy yield by 10-30%.

Hybridization of solar energy with other sources of green energy promises great potential in the coming years. Green hydrogen energy will improve energy storage, as battery performance will improve while costs will trend downwards. This will allow the adoption of energy into the grid according to demand.

Electricity storage will play a crucial role in enabling the next phase of the energy transition. Along with boosting solar and wind power generation, it will allow fast decarbonization in key segments of the energy market.

Reasons for optimism and high profitability of investments in Solar Energy

Solar generation is the most rapid power generation source worldwide and is where the largest investments in the industry will be concentrated in the next 10-20 years, due to the low barriers and cost-efficiency.

This is because investment assets in this area, such as a solar generation plant financed through a PPA (Power Purchase Agreement), can become fixed-income assets with very low risk.

Market sentiment expects the solar energy industry to continue growing strongly over the next few years, as there is a new wave of companies looking for high growth opportunities backed by venture capitalists. Therefore from 2022 to 2027, we can expect another rise in M&A deals.

The expected increase of renewable energies

Looking towards the future, global energy consumption is expected to have increased by a total of 23% by 2040 to around 17,500Mtoe. There is a stark regional contrast here; the energy consumption of Africa, Asia & Latin America is predicted to increase by 74%, 39%, and 44% respectively, while Europe and North America’s consumption is expected to decrease by 11% and 8%. A decline in population and improved energy efficiency are the reasons behind the drops in the US and Europe.

It is widely accepted that it will be predominantly renewable energy sources that will support increased global energy consumption in the future. Some reports (such as one from the International Energy Agency) state that 90% of all new electricity generation will be renewable. It is estimated that renewable energy sources will generate over 50% of global energy by 2035. This renewable energy charge will be led by solar energy, which is predicted to contribute almost 50% of total renewable energy generation growth within the next 4 years.

Whether all of these predictions will be met depends significantly on global environmental policy, but with the US set to rejoin the Paris climate agreement and environmental awareness at the top of the agenda across the globe, these predictions are certainly feasible.

Japan and South Korea have both recently announced their target for reaching net zero emissions by 2050, and China by 2060, while other countries such as the UK, France, and Sweden have also set legally binding targets for zero net emissions. The EU has established several climate-related goals to be met by 2030. They include a minimum 32% share for renewable energy, at least a 40% reduction in greenhouse gas emissions, and at least a 32.5% improvement in energy efficiency.

These targets are expected to boost the renewable energy surge over the next few decades.

With this in mind, renewal energies in general, and the solar energy industry in particular, are expected to continue growing strongly over the next few years, leading to a rise in M&A deals.

If you are interested in knowing more about this promising sector and its opportunities for M&A, please read our Solar Energy 2021 Outlook.


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Why give exclusivity to an advisor in the sale of my company?

If you own a company and you are thinking of selling it, you may have wondered whether you can face the process on your own. Who can you trust? Where can you seek advice? Who can you rely on? Is it worth investing in giving exclusivity to an advisor for the sale of your company?

Below, we are going to explain why it is necessary to have a professional advisor for sell-side and buy-side advisory, and how the exclusivity you grant them will drastically influence the sale time of your company and, above all, the price you will obtain for it.

Difference between advisors and brokers

Exclusivity is giving a single advisor – or a single advisory firm – exclusive control over the negotiation, the search for potential buyers, and the overall process of selling a company.

Within the world of commercial sell-side and buy-side advisory, there are different types of advisors. You can find either brokers or professional advisors.

Brokers

A broker is a person you hire to sell your business in exchange for a percentage of your business. In this case, you will not give any exclusivity and the process will not be confidential. The broker will spread the word that your company is being sold because that is what you have commissioned them to do, and very quickly the whole market will know about it.

You may even think that by having more than one broker you will get more and better offers, but this is a serious mistake. Two brokers may claim that they have found the buyer, creating an unresolvable conflict.

The broker is in charge of indiscriminately launching the sale offer to the market. They look for a buyer, and they will find one, but not necessarily the best one or the one who can pay the most for your company. It is in the broker’s interest that the transaction proceeds as quickly as possible so they can collect their percentage.

«Remember that a broker will look after their profit more than yours.»

Professional advisors in sell-side and buy-side advisory of companies

Professional advisors bring enormous added value that directly benefits you in the sale of your company. They carry out a properly planned, organized, and structured operation from start to finish, with confidentiality assured.

Granting them exclusivity means that they contact not the first buyer that comes along, but those who are interested in buying your company and can pay the best price, while assuring you that they can afford to pay. A professional advisor has the necessary knowledge to recommend to you not to sell at a certain moment if they believe that the offer is insufficient and that they can obtain a higher price.

Their mission is to protect the business owner and prevent the possible loss of value of the company during the sale process, which can happen if the sale process is disclosed indiscriminately. A professional Advisor will ensure complete confidentiality, as this can have a positive impact on the final sale price.

Likewise, an Advisor will not contact anyone you do not want them to. A broker cannot guarantee that, as their offer is indiscriminate.

«A professional advisor will always try to get the best price for the sale of your company, even if that means waiting for the right offer.»

Exclusivity to an advisor in the sale of a company. Professional Advisor and broker

The importance of confidentiality in the sale of a company

As we have said, granting exclusivity to an advisory firm has a major benefit for you: it guarantees confidentiality.

But why is confidentiality so important? For the simple reason that if word gets out that the company is being sold, it could reduce its value. This will hurt the final sale price. You may also not want your competitors to know about the sale of your company.

If you do not grant exclusivity you cannot enjoy confidentiality. You can not expect several brokers to compete to find a buyer and at the same time do so confidentially.

Ensure the confidentiality of your advisory team by signing a Non-Disclosure Agreement (NDA).

Find out more about the processes advisors use to ensure confidentiality: Confidentiality in the sale of a company.

The benefits and value of having an advisor in the sale of your business

Once you have contracted a firm specializing in the sale of businesses, they will assign a team of between four and six people to the sale of your company. This team could be bigger if the process is carried out at an international level and the firm utilises offices in other countries.

The Phases of the sale then begin.

This is where you will see the value of giving exclusivity to an advisor and the time they dedicate to:

  • Carry out a company analysis.
  • Prepare documentation: information memorandums, blind teasers…
  • Carry out a company valuation.
  • Conduct a database and market analysis.
  • Find companies across the world that could have synergies with yours. This involves analyzing their financial statements and past acquisitions.
  • Discard those that don’t fit: Determine the decision-makers in those corporations and find their contact details, a job that takes hundreds of hours.
  • Contacts: The heads of businesses interested in purchasing your company are contacted. The opportunity is explained to them and they are sent all the necessary documentation: blind teaser, NDA and Information Memorandum.
  • Negotiation: Here begin the requests for a host of information about your company in all different formats, a cross-checking of data, meetings, and visits that can last for weeks and culminate in an Indicative Offer. This process is repeated depending on the number of companies being dealt with.

We are still at the halfway point. The advisory team will have committed more than 1000 hours of work across analysts, managers, database teams, search teams, directors, and partners. At least 50% of the work remains until the transaction closes.

The sales process can take time and the end of the operation comes with the closing of the transaction.

Professional advice on the sale of your company

A professional firm specializing in sell-side and buy-side advisory, with trained and experienced advisors, cannot take on the project of selling your company and making such an investment into it without a reasonable expectation of getting paid for it.

«For your professional advisor, your profit on the sale of your company is their profit. Their incentive is that the more you earn, the more they earn.»

To ensure this optimal outcome, all serious advisors require a period of exclusivity. In return, they will work with the tireless commitment of their teams of experts in accounting, finance, negotiation, strategy, legal, and tax, including advisors across international offices.

All this dedication deserves your loyalty to your advisors in return. Your relationship with them should be based on trust and transparency. They will work exclusively for you so that you get the maximum benefit. 90% of their remuneration will come from the closing of the transaction. Therefore, maintaining a relationship of trust and reciprocity until the closing of the sale is vital, both for your interests and theirs.

Avoid risks by giving exclusivity to an advisor who specializes in sell-side and buy-side advisory

If you are considering the sale of your company, the best option is to give exclusivity to an advisor with real experience and work with them professionally.

They will help you prepare the company for sale, and decide on the best way to approach and which candidates to contact. They will devise the best strategy for your interests:

  • Taking the process seriously.
  • Preparing robust documentation.
  • Valuing the company.
  • Identifying which companies would fit as buyers.
  • Finding the ones that can pay the most.

Giving exclusivity to an advisor who works for you as part of your team, and has a commitment on both sides, prevents you from making mistakes. It also substantially increases the chances of selling the company and getting you a much higher price.

«Only professional advisors can create a competitive process and negotiate the different offers for the sale of your company, guaranteeing you the best result.»

When you start the process of selling your company different kinds of profiles. You may encounter brokers who will tell you that they can work with you on a non-exclusive, success-only basis and that you will only pay them if they succeed in selling the company. This is a serious risk. This type of broker will work only to close the deal at whatever price, as quickly as possible.

You will sell your company only once. Turn that transaction into a reward for a lifetime of job and wealth creation. You only need patience and the best professional advice.

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10 mistakes when selling your company

Are you thinking of selling your company? Are you prepared enough to avoid making any of the possible mistakes? Do you know how to manage them?

When it comes to selling a company, it is always important to put aside personal interests, since these can affect business development. We are talking about a complex process that requires appropriate advice that conveys trust, transparency and confidentiality.

The sale and purchase of companies is a lengthy procedure where you can easily make mistakes that can lead to the process’ failure.

To try to avoid this, in this article, we discuss the 10 mistakes you should never make if you want the sale of your company to be a success:

1. Failure to carry out a reliable valuation of your company

You cannot start selling your company without knowing how much your company is really worth, as you will not be able to reasonably argue the price to your potential buyers. You could be asking for a price beyond your means, or you could be unaware that your company’s real value is higher than what you are asking for.

In the following article, we would like to explain the keys to this activity and the most common valuation methods used in the market, to encourage you to carry out this important process in the most professional way possible.

2. During the sales process, changing the interests or motivations for which you have decided to sell

A good seller has to reflect beforehand on why they want to sell their company, and what they want to do after selling it. If you are not clear on this, it can be detrimental when it comes to selling your company, as the buyer may notice strange things in your attitude and become concerned. They may also interpret your insecurity as insincerity, and the buyer may start to doubt you and your company. This triggers the perception of risk and inevitably lowers the value they see in your company.

3. Negotiating with a single buyer

When you negotiate with a single buyer and they find out, they may take advantage of the situation. They will start to play with time, drag out deadlines and ask for more and more concessions.

The search for the best buyer and a good negotiation are key elements for a successful sale that reflect the business owner’s effort and work.  It is not only necessary to find a concrete offer but also a buyer who transmits confidence and peace of mind to the entrepreneur.

Therefore, it is essential not to make the mistake of selling the company to the first company or investor that makes an offer. The business owner should not make this decision without a thorough search and analysis of all possible offers and opportunities.

Finding the right buyer for a company is often a complex, time-consuming and frustrating process. It is, therefore, essential to answer the following questions:

  • What are the different types of buyers?
  • How do you know if a company is likely to be of interest to a buyer?
  • How do you find the ideal buyer?

We invite you to find out more about finding the best offer and counterpart in this article.

selling process of a company

4. Failure to manage the process with confidentiality

The sale of a company has to be a confidential process in which the business owner, accompanied by financial advisors, shows the company only to those who have a real interest and capacity to buy the company. Therefore, you should not give the sale of your company to several intermediaries as it will be challenging to maintain the confidentiality of the sale process.

You should be accompanied by an advisor, and only one advisor, during the whole process, who will work with you and take care of confidentiality. Otherwise, after a year the whole market will know that your company is for sale.

Also, the fact that it has not been sold will create a negative perception of your company. Rumours and uncertainty may increase, which would lead to the market saying that your company has been for sale for a long time because it has problems, which in turn would result in the value of your company starting to fall. Company sales processes need to be fast and targeted at genuinely interested investors.

Lack of confidentiality may cause the buyer to abandon the purchase operation and generate an absolute lack of confidence in the market about your company’s future.

It is essential to know how to correctly manage two critical aspects of handling confidentiality when selling a company.

In the internal environment, we find that many business owners make the mistake of communicating this decision to their staff or their close circle without taking the necessary care. When this happens, the likelihood of losing competitive strength increases, talented employees feel a lack of drive and look for other career opportunities, and the situation snowballs into more serious consequences such as the closure of what could have been a magnificent organisation.

It is, therefore, imperative that the employer communicates this to the right people at the right time. A positive attitude must also be maintained within the company independent of the intention to sell. This will keep your employees happy despite the change, and if the profitability of the company is maintained, the organisation will be easier to sell.

5. Dealing with the process alone, and not hiring consultants

The sales process takes many hours and a lot of work. During this process, you must focus on taking the right steps to improve your company to be ready at the time of sale. Suppose you go into the transaction without advisors. It will be very difficult to maintain confidentiality, carry out a rigorous search to find the best buyer, and at the same time, take those improvement measures.

Don’t do it alone! Buyers bring in very experienced advisors. Use professional advisors yourself: there are many pitfalls in the process of selling a company!

We remember a client whose buyer was pressuring them to sign an offer with a price, but the offer they had been made was on the company’s value and not on the value of the shares. The company’s debt had to be subtracted from the company’s value and once it was removed, the value of the shares was very low. If our client had agreed to sign such a deal without understanding the difference between the value of the company and the value of the shares, they would have committed themself exclusively to an unsuitable buyer who had also put in place a penalty clause in case our client left the negotiations, which would have trapped them in a very complicated sale.

Consultants know this and can help you avoid these traps – count on them, trust them and do not let the buyer cheat you! Often, the buyer will want your advisors to be absent, and they will tell you that it is better not to talk to them because all they do is make the process more difficult. Advisors only bring problems to lousy transaction processes, and they help improve these processes, defending and protecting your interests during the negotiation of a company’s sale. They have experience in this because they have been involved in many prior transactions.

Therefore, it is essential to use advisors who have real experience, not intermediaries, and who are professionals in financial and corporate operations. Selling a company is a very complex process in which there are many elements to watch out for and manage. Never put yourself in the hands of intermediaries; put yourself in the hands of advisors!

There is a wide range of “Advisors” from facilitators, brokers and consultants to auditors, lawyers etc. that are likely to appear in a transaction. But because they do not have a profile suited to the dynamics of a business transaction, many transactions have turned out to be unviable. This process requires very detailed and specific knowledge of techniques and dynamics that only financial advisors dedicated to companies’ sales and purchases can handle.

For this reason, when you think of advisors, you should look for those where the nature of their service is in line with their profession. In this instance, the best advisor profile is those who are specifically dedicated to the sale and purchase of companies.

6. Neglecting the business during the sale

As we have already mentioned, the process of selling a company is a long process that requires a lot of effort, so the fact that an entrepreneur would undertake this task alone is madness.

7. Focusing the operation locally

The second main mistake in selling a company is to only focus on selling the company locally. The best buyer is probably not in your country and probably not in your area. The best buyer for your company may be in another country.

You have to take a broad approach; you have created a lot of value over many years and it doesn’t make sense to mis-sell or sell the company quickly to the first individual who shows interest or to the first one who comes up with some money.

Look for somebody with the best fit, and the best ability within that fit to pay your company’s real value.It is unlikely that the potential buyers in the area will happen to be the ones who will create the most value for your company, nor the ones who will pay the most for it.

8. Failure to consider, where appropriate, that there are other minority shareholders (probably with different motivations or particular interests)

All shareholders must agree with the company’s sale; otherwise, the sale operation may be jeopardised, and all the effort and costs invested may have been wasted. They must be involved in everything that affects the company.

9. Wanting to sell in a hurry

Every day we see in our daily lives that when we do something in a hurry, things end up going wrong, and we lose time that we will never get back. The same thing happens with your company’s sale; wanting to sell as soon as possible weakens your negotiating position and your search for the best buyer. Your buyer will notice the rush; it will make them lose confidence and will give them weapons to press their demands.

10. Not planning the process

The sales process must always be planned. Otherwise, you can lose value at every stage. Disorder only brings risks and surprises that lower the company’s value, lengthen the process and the complexity of selling your company, and greatly increase the possibility of failure.

If you are considering selling your company, you will have to go through different stages that will help you maximise the final price. Do you know what they are? Download the eBook “HOW TO MAXIMISE THE PRICE OF YOUR COMPANY” where, in a simple way, we explain how to prepare the company for its sale.

DOWNLOAD THE EBOOK >>

Due to the complexity of the process, the delicacy of what is at stake and the specific dynamics that a corporate operation requires, the recommendation is to continue with this process in the hands of a team of professional advisors whose experience and track record overcome these main barriers. So, if you are interested in selling your company, contact us, and we will help you.

The desire to sell a company can come about for various reasons. For example, the desire to embark on another adventure, the feeling that “you’ve done it all”, tiredness of a long and exhausting professional career etc. Remember that the process of selling a company starts from the moment the entrepreneur first considers the idea. To avoid making mistakes, the support of highly professional advisors with a high level of transparency and a successful track record in past corporate transactions is essential.

You should pay close attention not to make any of these mistakes. It is very beneficial to have expert advisors such as our ONEtoONE Corporate Finance team during the process to have a successful sale.

 

At ONEtoONE ,we have extensive knowledge of the sector and the activities of buying and selling companies as we have participated in more than 1,000 mandates. We could give you our opinion on value ranges and many other aspects of a potential corporate transaction. If you need advice or are interested in buying and selling companies, please contact us.

Confidentiality in the sale of a company

Confidentiality. This is perhaps one of the first words spoken in a conversation between an entrepreneur who has decided to sell their company and those to whom the decision is revealed, including the advisors in the transaction process. You are not wrong to demand confidentiality, as this is key to the success of the operation.

Throughout this article, we will explain why confidentiality is essential, the role it plays at each stage of the process, and how to enforce it.

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Why is confidentiality necessary during the whole sale process?

Confidentiality: with whom and to what extent?

Confidentiality is undoubtedly the cornerstone of any company purchase or sale transaction. Therefore, in any corporate operation, the confidentiality agreement (NDA) must start from the first moment, even when the entrepreneur has the idea in their head but has not yet decided to carry it out. If you follow this recommendation now, you will save yourself from upset in the future.

You must inform certain staff members of the sale, as they will be part of the sales process. A few key members must have the information, usually the CFO; but remember to do it intelligently. You must make sure they keep the transaction secret by having them sign a confidentiality agreement when you tell them.

With this transparency and gesture of trust, you avoid suspicions arising when asking them for information. You will also reduce the possibility of them mentioning it to their colleagues. Usually, they will repay the trust you have shown them. It would be best if you did not discuss it with anyone else.

Non-Disclosure Agreement

Confidentiality allows the parties involved (advisors, buyers, sellers, etc.) to share information in the transaction without any external agent discovering it.

The mechanism that guarantees confidentiality in this type of operation is the Non-Disclosure Agreement (NDA). Previously, potential buyers who have been qualified to carry out the transaction, have a strategic plan and sufficient resources, have been provided with a blind profile, and have shown interest in moving forward with the potential purchase.

At ONEtoONE Corporate Finance, we only deal with large international groups when dealing with potential buyers. They have professional teams specialized in corporate transactions that are very clear about the importance of confidentiality.

Compliance with the NDA implies the non-disclosure of the information received (transmitted and perceived by observation). Confidentiality is an essential tool, especially nowadays. Be careful: new technologies make information much more accessible and immediate.

The signing of an NDA obliges the parties to monitor compliance with a series of obligations concerning the information transmitted, not only at present but also in the future. Non-compliance by any one of the parties can negatively affect the operation’s development and closure.

Risks of information leaks

But what happens if the information is leaked?

Transaction price variation

It is not uncommon for a market rumor to change the price of a stock. This leakage of information can overturn the initial strategy defined. On some occasions, both parties have even had to abandon the closure of the transaction.

The exit of key professionals from the organization

The management team and key people in an organizational structure may feel threatened by the proposed transaction long before the new partners arrive and explain their new intentions. Losing these professionals can be detrimental to the operation, as the buyer may back out or lower the price due to the loss of value implied by the loss of key people for the company.

«It would be best if you put in place means to prevent managers from leaving during the negotiation phases.»

One measure we have applied on occasion with the business owner has been to inform critical managers of the idea of a sale in two years and reward them with a percentage of the transaction’s value, encouraging them to work together to improve financial ratios during this period.

Other times, we define a price that we consider reasonable with the employer and indicate to the managers that they will receive a percentage of the increase on that price. Therefore, they see a clear benefit in making a significant effort for the company, since they become business owners, to a certain extent, and we guarantee that they do not leave you by surprise before closing the deal.

Confusion in the workforce

From the beginning, rumors of a new shareholder can generate nervousness among employees. This can affect their work performance and, therefore, the company’s financial results.

Concerns of customers, suppliers

News of a new shareholder situation may cause uncertainty for customers, as they do not know whether they will still be able to continue to depend on the company’s products and services, as well as for suppliers, as they do not know whether they will be able to rely on the approval of the new owners.

Confidentiality in the sale of a company quote.Without M&A advisors, it is tough to maintain confidentiality and carry out a rigorous search process for the best buyer. If you do not give exclusivity as advisors to a firm specializing in companies’ sales, do not expect confidentiality either. You cannot expect two advisors to compete to find a buyer and simultaneously do it confidentially.

Managing confidentiality during an M&A transaction

Managing confidentiality is a crucial aspect of a transaction of this type. The first people to be required to maintain confidentiality are the advisors themselves. Even before signing a mandate with them to sell your company.

It is standard practice for advisors to send a confidentiality agreement to potential clients. In it, they commit themselves not to disclose any of the information provided, regardless of whether or not they subsequently sign an advisory contract.

If you are considering the sale of your company and are contacting different advisors, do not hesitate to request this confidentiality agreement to safeguard your sensitive information and future operation.

Focusing on the buying and selling process, sellers usually look for higher confidentiality levels, but this depends on many factors and can vary.

For example, if the seller wants a high level of confidentiality, they must reduce the number of potential buyers reached, which will slow down the sales process.

On the other hand, if the seller is looking for faster results, they must broaden the potential buyers’ selection, making it more difficult to control the confidentiality factor. This may seem like a conflicting contradiction to any seller.

Strategies to guarantee confidentiality

It is possible to use different techniques during the buying and selling process to increase confidentiality, but many business owners are not even aware of them. Here are some of these techniques:

The creation of a Blind Teaser

The Blind Teaser is a document designed to protect the company’s identity from being revealed upon presentation to potential investors. The teaser reveals the company’s status, but not its name. The buyers who show interest must sign a confidentiality agreement to protect their identity.

The signing of an NDA

Confidentiality is crucial from the first day. There will be many agents involved in the process. Everyone exposed to this information must sign an NDA so that the idea and intent are protected and secure.

Letter of Intent

The Letter of Intent (LoI) is a document in which the buyer and seller put in writing the main points of the agreement they have reached. This text must include all relevant details:

  • Type of transaction: capital raise, purchase of assets and liabilities (and which assets and liabilities), or shares.
  • The price.
  • The percentage of the company acquired.
  • The methods of payment.
  • Payment terms and deadlines.
  • Price adjustment formulas.
  • Other types of remuneration.

The confidentiality of the agreement and a period of exclusivity (in which the seller cannot negotiate with other buyers) are also agreed upon while the Due diligence and the purchase and sale contract are being developed.

Virtual Data Room

If a deal has reached the point where is necessary to create a Data Room, it means that we are close to closing the deal. In other words, we are at a sensitive point where confidentiality is vital. Hence why the Data Room is designed to protect the information. They create a virtual space where the seller will hand over all the necessary documentation to the potential buyer in order to proceed with the transaction. Information delivery is done through online software that prevents printing of the contained documentation, avoiding uncontrolled data leaks.

Confidenciality_Data Room Objectives

How does the Virtual Data Room contribute to confidentiality during the sale process?

A Virtual Data Room (VDR) is a virtual space where the seller uploads all the necessary company documentation so that the buyer can have access to it and progress with the process.

This information transaction is extremely sensitive. It should only occur when both parties have reached a reliable and trusting relationship. At this point, the willingness of both parties to invest and close a transaction is implicit.

This information transaction is carried out through software designed to avoid any revelation of documents and to maintain the safety of uploaded documents. The software must be a high-quality product that provides confidence, security, and safety to both parties involved in the operation.

Imagine how difficult it could be for a business owner to expose the essence of his company. Aside from the emotional factors that make this operation difficult, this part of the process must meet all the requirements to guarantee security and peace of mind between the parties.

At ONEtoONE, we handle our clients’ transactions with transparency, confidentiality, and professionalism. One of our best allies is the trust we generate through our work. Therefore, we encourage you to contact us if you are looking for advice on your company’s sale/purchase. And remember, confidentiality is the key to success.

How long does it take to sell a business?

How long does it take to sell a business?

How long does it take to sell a business? After having decided to sell your company, this is one of the first questions that will arise.

There is no standard answer to this question, it depends on the complexity of the operation, and in turn, on the size and circumstances of the company to be sold. But generally speaking, the sale of a company takes from 9 to 12 months to complete. In some cases, it can take up to 18.

Time is money, and in the case of a company, quite literally. The key to maximizing the value of our company during the sale will be determined by knowing where our time and money are in this process.

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Why does it take so long to sell my company? Factors affecting the selling time

There are several reasons that justify the investment of time in this operation. If you want to realise a sale with all the value obtained in a long life of wealth creation, the first and best strategic decision is to invest in hiring specialized advisers.

Selling a business is a complex process.

Factors affecting the time it takes to sell for the seller

For the seller:

  • It is the most crucial decision of their life. Considering that it is a process that they will go through only once in their life, it is normal that the preparation for this decision brings time for reflection and analysis.
  • If the company also has several shareholders, imagine the time it takes to reach an agreement between all of them about the sale’s objectives.
  • Selling your company means putting the future of your employees and their families in other hands, with the responsibility that goes with it.
  • The seller can make errors of judgment forced by emergencies, such as health problems. Even in that case, having a trusted advisor allows you to face your personal reality with the peace of mind of knowing that your company’s sale is in good hands, without having to accept the first offer that is presented to you. A good advisor can also help you identify the best time to sell your company.

Factors affecting the time it takes to sell for the buyer

Other factors that will affect the time it takes to sell your business are not under your control. These are those related to the buyer:

  • The buyer needs to check and ensure that the value of his purchase is real.
  • When it comes to investing our money, rushing is never good advice, and preparing the necessary documentation that reflects the real value of a company requires time and professionalism.
  • Ideally, if there are several potential buyers, they should work in parallel, but this is not always possible. As a consequence, this analysis time will be multiplied by each buyer who wants to move forward in the process.

Factors affecting the time it takes to sell the business regarding the process

Finally, from the point of view of the process itself, all this time is required to maximize the company’s value and carry out the unavoidable phases of a sale and purchase transaction, with all the necessary documentation and negotiations.

Doing all this while ensuring that the company does not lose value during the sale process is not an easy task.

And here another question comes as a surprise: can my company lose value during all that time? The answer is, sadly, yes.

The sale is a very long process, and if the seller dedicates themself exclusively to this process, they may lose contact with the company. That makes its results decrease and, therefore, its value.

As an entrepreneur, the time you dedicate exclusively to the sale of the company will reduce its value and the possibility of profiting from the sale.

«The best way to spend your time as an entrepreneur during the sale of your company is to dedicate yourself to it until the process is complete. It is your best contribution to the process, leaving the fieldwork to professional advisers and supervising them.»

Time frames for the phases of the sale

We arrive at the sale process itself, the hard work of analysis, search for buyers, negotiation, preparation of documentation, and closing agreements. Doing all this work effectively requires a considerable investment of time and affects how long it can take to sell a business.

Below, we outline the steps so that you can get an idea of ​​the approximate time invested in each of them:

1. Analysis phase of the company and the operation

To make the most of your time in selling your business, there are a number of initial decisions you need to make:

  1. In this first phase, you have to reach an agreement with shareholders and prepare the company for a sale.
  2. Specify whether you want to sell part of the company or all of it.
  3. Choose the type of buyer: national or international; financial or industrial.
  4. Find out whether there is a need for additional work on the development or improvement of the company.
  5. Finally, define an appropriate work schedule for the project.

This phase should not take more than 1 month.

2. Phase of preparation of the Valuation Report and search for candidates

Two documents are prepared: the blind teaser and the company’s Information memorandum.

The Information memorandum must reflect the reality of the company and its most positive aspects. This way potential investors have the necessary information to assess the purchase.

Once the analyst team has all the information about the company, they can prepare the sales notebook in 1 month.

The Valuation Report helps the seller know their company’s value and can take 1 month to prepare.

Consult our valuation E-book and many more in the ONEtoONE Library.

Regarding the search and screening of candidates, it is one of the most difficult phases and requires a greater investment of time.

Being able to filter up to 700 applications, this phase can last up to 1 month.

3. Investor Search Phase and project presentation

This phase is time-consuming in assessing the interest of all potential buyers. For each selected application, you must find the appropriate contact, and send each of them the teaser of the operation, as well as a confidentiality agreement (NDA). The objective is that each one returns the signed NDA so that the company’s Information Memorandum can be sent to them.

Consider that you have to negotiate with many people simultaneously and with each one in different phases. So this phase can easily take 2 months.

4. Negotiation phase of the sale between buyers and sellers

In this phase:

  • The seller and buyer finally come into contact.
  • The necessary documentation is sent.
  • A period of resolution of doubts (of all kinds) is started.

Until a Binding Offer materializes, a resolution usually requires many conversations. The buyer requests exhaustive information and consults with his own team and with the seller. You need full confidence in your investment.

This period can last an estimated time of 2 months, depending on the agility of both parties’ responses: seller and buyer.

5. Due Diligence Phase

Due Diligence is a process of profound and professional analysis that the buyer commissions about the company for sale. The buyer wants to make sure of the value of what they are buying and contacts auditing companies and tax specialists to prepare a document that can cost between € 40,000 and € 100,000. All this searching, analysis, and coordination of information delivery between the two parties can take up to 3 months.

6. Closing

And finally, like a mountaineer who believes that the ascent has finished and discovers that there is still a small mound left before he can reach the top, we arrive at the closing phase.

After the agreement, the closing requires the preparation of a Sales Contract or SPA. A specialized commercial lawyer must prepare this document. The preparation and negotiation of this contract and the parallel documentation (such as shareholder agreements) can take between 1 and 2 months.

It is possible to make the time frames profitable and even shorten them

Now you have an idea of ​​the process and its timeframes. Maybe you will ask yourself one last question: is it possible to shorten the timescale of the sale of the company? Yes, it is possible.

The key to shortening how long it takes to sell a business is planning, with professionals who know how to provide the appropriate documentation and who have experience in negotiation. By presenting the information in an agile and clear way, fewer buyer doubts will arise, and the timeframe of the sale will be shorter.

Additionally, advisors understand decision times and know the times of the year when activity slows down. Knowing this, they avoid unnecessarily lengthening the buying and selling process.

You would not build a house without an architect. Similarly, the recommendation is that you do not sell your business without an advisor’s help.

Conclusions

It takes a long time to sell a business, therefore investing in professional advice will save you time and will help obtain the highest possible price for your company’s sale. While it is true that time is the most valuable resource, money also matters. We can use both wisely to help you face this crucial moment in your professional life: your company’s sale.

Are you considering the sale of your company? If you need professional advice, please contact us or fill out the following form:

How much does it cost to sell my company?

These are undoubtedly the most frequently asked questions in our meetings with clients: How much does it cost to sell my company? How much does an advisor receive from the purchase/sale of my company? The answer is a classic and can be summarized in two words: it depends. Throughout this article we will develop this answer, and most importantly we will explain the cost of advisory services in the sale of a company.

The first thing to understand is how many professionals you need to sell a company: a financial advisor, a lawyer, a tax advisor and a notary are the crucial figures. As you can see, many individuals are needed, and each one charges for their services in some form. When you decide to sell your company professionally, you will have to ask them about their fees.

[If you want to read more about the different figures involved in the process of buying and selling a company, read the following article: Whether Buying or Selling a Company: Pick the Right Advisor  Or this one: Why is it important to have an advisor?]

We are going to focus on the financial advisor, our role in the process, the first link in the chain and the one that will accompany you in understanding how much it will cost to sell your company.

Generally, when you contact financial advisors to discuss your company’s sale, you will find there are two types of fees: fixed fees and success fees.

Fixed fees or Retainers

Fixed fees or retainers are charged regardless of the outcome of the process. They are commonly associated with documentation delivery or with the achievement of specific landmarks during the sale process [Read more about the operation of a company’s transaction in the article The selling process of a company]. It is not uncommon for the advisor to offer to deduct these fixed fees from the success fees. The truth is that they usually only represent a tiny part of the total costs in the event of a deal closure. However, they are still a cost that the business owner must “advance”.

The controversy around fixed fees is their relevance, that is, should I pay them or not? This doubt arises because some advisors work only on a success basis. There is a proverb that says: “What does not cost is not valued”, and another: “If you pay peanuts, you get monkeys” or “You get what you pay for”.

When a business owner starts the process without spending a penny, they have not embraced the sale of the company and they will always be tempted to pull out at any time. Also, a business owner who does not trust their advisor will think that if they have not made the right choice of advisor, at least they have not spent any money. Perhaps the business owner has repeatedly heard cases of friends saying “they charged me and did nothing”, or perhaps they have already experienced it themselves. While we cannot guarantee that this will not happen, most of the time this lack of professionalism occurs when the transaction has been put into the hands of people who do not work exclusively in this profession. There are some excellent professionals who will dedicate many hours to the sale of your company:

  • Ask your lawyer, your tax advisor, a competitor who has already sold, or search on the internet for reference.
  • Even if you believe that you have found an advisor in your first meeting, try to obtain a few different proposals and compare them.
  • Remember that you are only going to sell your company once.

[Read more about the importance of advisors in this article: Why it is essential to have an advisor?]

Let us go back to the option of not paying fixed fees, but now let’s look from the advisor’s side. Not having an initial fee in the process will also affect the advisor and could generate a conflict of interest in the long run, as they may want to close a deal at any cost and without considering whether the chosen buyer is the best option for their client. This would, in part, be due to the advisor’s fear of not closing the transaction and thus not obtaining any fee (if everything is dependent on success), despite having given away time and work.

Negotiate hard, defend your money, and make sure they will protect your interests, but always seek a fair agreement for both of you.

But what is fair? This is a question that has no easy answer, especially when, as in our case, we sit down with companies that go from 5 million in revenues to 500 million. Each of them has different peculiarities and complexities. But what we can say is that at ONEtoONE, each project no matter how small, will have at least two people working on it and could have up to ten.  Think about the cost of a senior employee in your company and the hours that they will dedicate each month to a project, and you will have a very rough idea of the price range for fixed fees.

[If you want to know more about how long it takes to sell a company, read our article How long does it take to sell a business?]

Success Fees

These fees are understood and accepted by all clients. Their name says it all; they are obtained upon the completion of a project, whether that is selling or buying a company that you have been looking for.

However, they can also be complex to calculate. In the sale of a company, the norm is to pay a percentage of the company’s agreed value, since the higher the price achieved, the greater the reward for both the client and the advisor. And what is the percentage rate applied? Again, this is difficult to answer, but there is at least a commonly accepted rule: the rate will be inversely proportional to the transaction size; that is, higher percentages will be incurred in smaller transactions, and lower rates will be incurred in larger transactions.

Do not get carried away by what a friend who has read in a newspaper about a large transaction tells you, because that is another league. The purchase/sale of a family company is not governed by the figures of Nasdaq-listed companies. The risk of selling, or rather not selling, a small or medium-sized family business is much greater than in large multinationals. For greater risk, there is a higher cost. The range of rates is very wide for family companies, and usually goes from 1% for large transactions to 6% for small transactions, based on the transaction value.

Make sure you demand that the rate applied to your transaction is justified. To avoid surprises about how much it will cost to sell your company, grab a calculator and with an estimated value of your company, do the calculations to avoid scares or misunderstandings in the future.

If you have got this far, the ‘it depends’ answer that we used at the beginning of the article to respond to how much it costs to sell your company should already be clear. Now all that remains is for you to put pen to paper. Contact us and tell us about your case with complete confidence, in a confidential process and without any obligation from you:

The information in this form goes only to our team of advisors and is treated confidentially. We will contact you at the phone or email that you have left us confidentially, so make sure that it is yours. If you prefer, we will send you a confidentiality letter. Then we will ask you about your company’s activity, financial numbers from the last few years, the reason for the sale, who the shareholders are, and what your price target is, among other questions. Keep this information handy and in electronic format because we may ask you to do a convenience analysis and establish a proposal. All of this may take a couple of weeks and will be at no cost to you.

The best buyer for a company

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During your company’s sale, you risk the materialization of all the value accrued through many years of hard work. Considerable wealth can be created or destroyed in this precious time. That’s why you must know the techniques that will help you maximize the sale price.

Many business owners wait for a buyer to appear someday without stopping to think about the flawed logic in selling the company to whoever comes first.

Will he be the best buyer?

Will he be who can pay the most?

It would be a massive coincidence if it were. It’s much more likely that it’s not. Also, by being the only buyers, they have substantial leverage.

But how can you be sure that there aren’t other companies who can make better offers if you don’t do deep research?

Business owners often rely on a lawyer or a CPA to search for potential buyers and investors without considering that 70% of the deal value lies in finding the best possible buyer. Hence, it is essential to find a buyer who is the best strategic fit and, consequently, will pay the most.
To maximize your company’s value, your advisors must engage in a rigorous search process to find buyers with the highest synergies with your business and those with the most substantial financial capabilities.
The best buyer is not always the most apparent or the closest one. The best counterparty for your company could be, for example, from an adjacent sector located on the other side of the world.

A supplier

Sometimes, one of your suppliers might be your ideal buyer; if he buys your company, he will be able to vertically integrate into the sector and have direct access to relevant clients. As such, a company of automobile components selling only to second manufacturers might be interested in vertically integrating upwards by buying a client’s company that sells directly to brands.

A client

If they are interested in guaranteeing a secure supply and the ability to control prices, one of your current clients could also be a potential buyer. We have seen this with citrus product distributors who, if they don’t have their own production, are at the mercy of the farmer’s product auction.

A foreign company

The ideal buyer might be found abroad. Many multinational companies are looking to grow via entering new geographical markets. Instead of starting the activity from scratch, they prefer to save time and quickly get market share by buying local companies with local teams.

Private equity

Naturally, we must also look at private equity firms eager to enter into growing sectors or industries with windows of opportunity.

Often, one of these firms buys a company so that it can be a platform to consolidate an industry through acquisitions. As such, it’s interesting to contact private equity entities that have already invested in a competitor either in the same country or abroad.

In some countries, almost 25% of company acquisitions rely on private equity participation, so if you plan on selling your company, it is a good idea to consider private equity as a possibility.

A competitor

And what about your competitors? Having to compete with more competitive foreign companies forces many businesses to find ways to reduce costs via productive synergies or gain enough market share to generate economies of scale by buying similar companies.

A company from another sector

The range of possible buyers doesn’t end here. Market dynamism is also provoking the entry of new competitors coming in from other sectors.

So, what’s the ideal buyer for your company?

Methods to find the best buyer for a company.

First, it should be understood who and why a company can be of interest to a buyer. Once these concepts are addressed, it is time to get to know the best buyers and their motivations for buying the company.

Twelve concepts can help you identify companies that can be looking to acquire a business.

Synergies: A buyer wants to increase its strengths by acquiring a company, resulting in a merged entity that is stronger than the two separate businesses.

Diversifications: Buying to diversify has the objective of acquiring companies outside the buyer’s main business line to enter growing markets with high potential.

Access to relevant clients: Some buyers acquire companies to help them reach a specific client they could not get before.

Strategic Realignment: Many times, sectors change, and the companies try to adapt through acquisitions.

Fiscal Reasons: Some buyers search for companies with a high level of accumulated fiscal credit. The acquisition of this kind of companies can avoid some tax payments due to benefits during a specific period for the buyer.

Overvaluation of the buyer’s stock market:  Some companies are of high interest to the buyer because this allows the exchange of overvalued shares for shares with an average value.

Technological Change: Technology changes alter competitive factors and make acquisitions an option for companies to adapt to new disruptive tendencies.

Regulatory Change: When governmental regulations change, the game also changes. In these cases, a quick solution can be acquiring a company that complies with the new law.

Competitor Pride: Increasing presence, size, and remuneration might be the objectives of directors of big groups. Therefore, an acquisition strategy can be desirable for them.

Purchase of undervalued assets: Some sectors are in a downward cycle, making companies lose value. This is why it is essential to keep an eye on the sector’s tendencies, as it can be a clear sign that selling your business is the best option before the company loses its value.

Purchase of unique resources and capabilities: A company can present high levels of attractiveness for a buyer thanks to its resources and capabilities that the buyer misses.

Gain power in the market: For a buyer, increasing their market share will always be of great interest in strengthening their competitive advantage.

Keys to maximizing your price

The first method is to take advantage of the wave. There are periods in history where the interest rates are low, and the shares are listed in high multiples. They are the moments when people pay the highest prices for whichever company. An intelligent entrepreneur knows how to exploit this window of opportunity. He profits from the ‘wave of high prices‘ when the market is hot and sells at the best time.

These days, low-interest rates, high stock valuations, as well as an abundance of liquidity in the market are causing many international companies to take up positions in other countries.

Don’t get caught up in the paperwork. Some advisors can create encyclopaedic Sales Books for your convenience, explaining the sector and the history of the company. They can spend months preparing documentation for the company’s sale without beginning the search for investors – in many cases because they don’t know how or where to look.

The Information Memorandum is essential, but much more relevant is showing the interested buyer the company’s potential. It does not mean focusing on what you have done or earned in the past but showing them the company’s value in the future.

Never go out to sell, showing a valuation. If you present a valuation to the buyer without having had the opportunity to demonstrate the synergies and all of the added value that they would be receiving with the acquisition of your company, the buyer will be dissuaded before you have been given a chance to start the conversation.

It is much better to present the company and its capabilities, understand why they want to buy it, calculate synergies, request offers, discuss the possibilities by supporting the value that you will bring to them, and make them compete with the other offers you have received.

Be pro-active. Many entrepreneurs wait for a buyer to surface without realizing that selling the company to the first buyer that appears lacks logic. What is the likelihood that this would be the best buyer or the one who would pay the most?

If you want to sell a company, don’t be passive. The best buyers do not usually spend time actively searching for companies to purchase.

The best buyer is not the one who seems the most obvious or the closest; it could be, for example, a company in a different sector but still related and located on the other side of the world.

Search for such a buyer, for your company, who has a lot of liquidity and with whom your company brings synergies, irrelevant of where it might be. If this potential buyer perceives true value, he will pay more for the company.

Use experienced advisors. When an interested buyer appears for the company, the entrepreneur, in many cases, will decide to confront the buyer and his advisors alone, without supporting himself with expert professionals. This translates into prolonged processes, complicated, stalled or collapsed negotiations, unnecessary advances and setbacks, and ultimately wasted time for both parties.

If you are interested in selling your business, contact usONEtoONE Corporate Finance provides advisory services to small and mid-cap companies. We help find, attract, and close deals with the buyer or investor who can pay the most, maximizing your company’s value.

Why is it important to have an M&A advisor in your company’s sale?

Have you bought, or sold, a business lately?  If you did, how do you know if you received optimal value on the deal? Did you ask an M&A advisor? It can take years before the value gained can be objectively measured, or even whether the result was a business success. Recent McKinsey and Harvard research shows that nearly 90% of all M&A deals fail to deliver the value expected or achieve their M&A goals.  How can this be? Several factors lead to poor M&A results.

In the next article, we will discuss the importance of having an M&A advisor in your company’s transactions. We will also discuss the most critical aspects of doing their job well from the advisor’s perspective.

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Pick the Right advisor in your company’s sale

Paul Hager, Partner at ONEtoONE Corporate Finance, speaks from experience. As someone who has bought companies as a member of the Fortune 500 investment committee and as a valuation and investment advisor to M&A clients, he has found that the team you select to be your investment advisor plays a significant role in the amount of value created in the deal. He has listed characteristics that exist in all exceptional advisors. You can find them below.

An exceptional advisor:

Asks “Why?”: The “5 Why” method states that clear insight leads to the best decision and that insight is likely to come after you’ve assessed answers to five iterations of “Why?”. An exceptional advisor asks “Why” to continuously validate assumptions, eliminate wasted effort, explore new deal options, and sustain deal focus.

Understands your business: The M&A advisor must have an empirical view of current and future industry trends, enabling technologies and interdependent industries that significantly increases the value ceiling.  As a result, they will develop an optimal set of investment candidates for each client.

Spearfishes: An exceptional investment advisor will find those investors and companies that most value a specific client’s offering. Using the “5 Whys” and other analytic methods (e.g., Porter’s 5 Forces) to build a well-defined target profile, the advisor will quickly identify ideal matches for each client.

Leverages global reach and local insight: A good advisor will leverage an expansive global investor network that connects multiple industries. An effective N&A advisor will leverage access to trusted M&A colleagues with a deep understanding of financial markets, industries, and companies in each region of the world. This allows them to open discussions with new investors and corporate networks that promise to hold a most significant interest in the deal.

Takes business, personally: A good investment advisor is continuously mindful that M&A success depends on people to embrace and support implementation – before and after the deal. Applying the previous four facets helps create and expand deal value.  An exceptional investment advisor knows that business is personal and that its most significant value asset must be supported, nurtured, and challenged. The only suggestion of Paul Hager is that you chose an investment advisor who also possesses the five qualities mentioned above.  If you do, you will capture exceptional value in your deal.

If you want to continue reading about the opinions and experiences of our partners, please click on the following photos and access their interviews:

Paul Hager
Dominique Gazel-Anthoine
Jean Luc Bertrand

Why many M&A advisors are not sufficient?

Being an M&A advisor is not an easy task. We have just talked about the characteristics that a good advisor must have to be hired for your company’s transactions. But it is normal for a business owner who thinks about selling his company to be afraid of hiring advisors.

It is a crucial decision, there is a lot on the line, and many things are going through his head: “Are they going to fight for my best interest? Do they have a large enough contact base to sell this? What if the charge me a lot of money, make us work, play around and then nothing happens?”.

It is true, a lot of “advisors” do not do practical work. They are good at documentation, valuations, analysis, etc. But they do not know how to locate the right buyer; they do not have the technical and human resources needed, so they cannot spend the necessary time to find the right buyer. That is why, regardless of their efforts and excellent skills, they fail to sell your company and let you down.

According to our Chairman of ONEtoONE Corporate Finance, Enrique Quemada: “Our experience in dealing with more than 1500 mandates has shown that 70% of the outcome of a business sale is based on an extraordinary amount of work on the buyer search and contacting of the key decision-makers. That is an intensive and heavy workload that cannot be done by a small team or a single advisor; the reality is that without a strong support system, they will not be able to do it”.

If this is your company and is the most critical transaction of its history, you deserve an elite team working to maximize the transaction sale value.

If you want to sell your company, make sure that the advisor you choose can provide you with this level of search capabilities to find your buyer and beware of the buyer who attacks your advisor.

If you sell a business, I warn you that buyers know that advisors play a very relevant role for the seller, and some will try to bypass them and speak directly to the company owner. We had the following experience: “Once the conditions for the contract and a deadline to sign the SPA had been set, the buyer asked to have a personal meeting along with our client. The buyer asked for a 30% payment deferral in the meeting, and our client agreed. The next time we met with him, he told us what had happened. When we asked him what guarantees they had given him for this payment, he did not answer. He had not gone into detail with the buyer, and he soon realized what a mistake he had made not having his advisors with him when making concessions”.

In some cases, a buyer tries to gain the client’s trust and encourages him to forget about his advisors, insisting that things will be smoother if they speak one-on-one. I recommend that you never fall into that trap. A trap set up without a doubt to negotiate with a less experienced person to get a better price.

How can the advisor help his client?

For an excellent professional dedicated to clients’ advice, such as a lawyer or a financial advisor, it is vitally essential to advise and guide him towards the best possible decision. When a business owner asks for advice on his company’s future, the advisor faces two types of clients: those who want to sell their business but do not know-how, and the ones who should sell their company but do not know it yet. What both business owners have in common are significant reasons to sell their businesses. These reasons tend to be:

  • The proximity of retirement.
  • It is unable to keep up with competitors.
  • Lack of sufficient resources to implement the latest developments in his sector.
  • Personal reasons such as health issues, being tired after years of hard work or the desire of spending more time with family and loved ones.

As a professional, the lawyer or a financial advisor’s responsibility is to recommend his client a great expert in M&A. Here is where in ONEtoONE, we want to help these consultants and give them the reasons we are the best companion for their client during his M&A process.

ONEtoONE: the best choice of advisor for your M&A transaction

At ONEtoONE, we are a firm specialized in M&A that supports our clients throughout the entire sales process. We offer a 100% specialized service to maximize its value and thus create interest and competition for it. We achieve this thanks to our international team of financial and sectorial experts. Our cutting-edge technology has allowed us to develop a proprietary methodology and developed our proprietary methods.

We guarantee the clients that we will always comply with our three pillars during the sales process: methodology, competence, and transparency. ONEtoONE applies its values and methods in all its services: sale and purchase of companies; mergers, business valuations, investor search, strategic financial advice, and financial advice.

If you are interested in any of our services, do not hesitate to Contact us.

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