How to sell a company?
The sale of a company is a complex process that lasts a minimum of six months and can be extended to twenty-four if negotiations with potential candidates fall through.
Experience has shown us that the average time of a professional sales transaction maximizing the interests of the seller takes around nine months.
To explain the process, we will use the case of a price maximizing broad search.
The first thing to do is decide our ideal type of operation. This means that all the documentation will be focused on this aspect. Throughout the process it is normal that new, previously unconsidered opportunities arise during the exchange of ideas with potential buyers that will help us achieve our goals.
Once the perimeter of the sale is defined, a blind teaser should be drawn up. This document will be the one that the advisors will circulate between potential buyers and investors. This document has enough information to show the basic aspects of the company and create interest in it, but not enough information to be able to identify it. An information memorandum and a valuation report are also drawn up.
Once these documents are prepared, a mapping of counterparties is made. This mapping is a document outlining potential buyers and includes a short list of the candidates who will be contacted first.
Contact is made by sending out the blind teaser and, if there is interest, a confidentiality agreement is signed. Once it is signed, the candidates receive the information memorandum.
After analyzing the information memorandum, the candidates decide whether or not to continue with the process. If they want to continue, they will have greater contact with the company and they will be given additional information.
Nevertheless, in order to move the process along, a point is reached where the candidate will need to present some non-binding offers in order to receive more information, i.e. he will need to define what price range he would be willing to pay and under what circumstances. These offers let us discard those candidates who don’t fit our client’s needs and it means we will only give more information to those potential buyers with which there is a greater understanding in terms of a potential transaction.
From there on, the candidates are provided with more information via a data room (a closed room with access to information, but from where it is impossible to take out or photocopy information) so that they can prepare a binding offer. Once the binding offer has been negotiated by both parties, it will result in a letter of intent. This agreement outlines the conditions of the transaction and its validity is subject to the results of due diligence.
Due diligence is the term given to the checks that a buyer should make before buying a company. These checks consist of verifying that everything that has been said is true and that there are no hidden liabilities. To do that, the buyer hires advisors to thoroughly analyze the company: auditors to verify the accounts, lawyers to validate the contracts, tax experts to check that taxes are paid and other advisors or experts are needed depending on the company’s activity.
If the candidate verifies that everything is true and that there are no surprises, the next step in the process is the contract of sale. If there are aspects that don’t correspond, the conditions of the agreement will be renegotiated.
Are you prepared to sell your company?