Tag Archives: Sell side

Mergers & Acquisitions, Compraventa de empresas

Preparing Your Company For Sale

Any businessman thinking of selling his company should start preparing one or two years in advance.But the question in this moment is “Why?”

When you want to sell a house, you make improvements such as painting it, mowing the lawn, cleaning it and fixing anything that’s broken. These small touches can increase the value of the house in the eyes of the buyer because it changes its overall aspect. With a value much higher than a house, this advice rings even more true when it comes to your company. Then, why don´t you prepare your company for sale?

If our client has time, we always begin to prepare his company one or two years in advance. This way, we have more time to improve its value, make it more attractive, interest more buyers, increase our chances of success, remove obstacles, and minimize the fiscal impact and economic consequences of the sale.

The more attractive you make the company for the buyer, the more money you will be able to ask for and the more you will receive. The objective of this chapter is to show you how to get your company into shape in order to seduce investors or buyers.

One of the main objectives of the preparation process is to identify the key aspects that need to be improved and reduce any possible risks that a potential buyer might perceive to be a problem. The optimization of the selling process requires that a number of factors are fully prepared for. This includes; financial information, company marketing, business plan, management team, employment situation, client portfolio.

Have you prepared for all the factors in the selling process?

Mergers & Acquisitions, Compraventa de empresas

What type of sales process would you choose?

Not all companies are sold in the same way. Each sales transaction has its differences. Therefore, each strategy must be designed and structured according to your preferences as speed, confidentiality, price and market conditions.

Among the different possibilities, the majority of sales processes can be placed under three types.

1. One to one relationships: this consists of contacting a single buyer. The candidate who is contacted will be the one who is considered most likely for the transaction. In these cases, the process can be very confidential and, sometimes, faster. However, many candidates who might have been interesting or who might have paid more are left out.

2. Restricted auction: this consists of contacting a small number of potential buyers (between three and five). If your company is very attractive and has a clear interest from potential buyers or investors, a formal process can be organized. This organization means that the process can be faster and it creates competition between possible buyers. The risk is that the candidates we choose may not comply with our deadlines for submitting bids. They might even fail to make any offer because the company is not interesting enough to be able to impose a rigid auction process.

3. Broad auction: consists of contacting a large number of candidates (between fifteen and twenty for example). A formal process is created with deadlines for submitting bids. This is an advantage because it maximizes competition, creating a highly competitive environment that shows you the maximum price the market is willing to pay. One drawback is that the deadlines can be extended and there are more risks for a lack of confidentiality, with the potential disorder that rumors can cause.

You are able to choose one of the processes according to which elements are most important to you: confidentiality, the speed of the process, chances of success, selling price or cost of the sales process.

Which is the best option for your business?

How can the sales process maximize the price of my business?

It is critical to distinguish between the terms “value” and “price.” Price is determined by supply and demand at any given moment. Individuals, on the other hand, assign value based on their profile and interests.

Price, in our experience, is generally a result of the effectiveness and quality of the sales process. Thorough planning, well-presented, clear documentation, access to a wide selection of candidates, effective confidentially management and proper offer negotiation will ensure you with the best price possible for your business.

The more offers a firm receives, the more likely it is to find the best buyer since more offers imply more bargaining power.

If you scour the market for potential buyers and obtain a variety of indicative offers, it will be easier to determine the price range that the market is willing to pay.

As a result, we will concentrate on the globe of prospects who may acquire or invest in your firm.

The quality of every stage of the process has a real influence on the final price. A company with an embedded value of 100 could have a poorly managed process meaning that the company is sold for 60, whereas a well-managed process could raise the selling price to 140. More than a 100% difference.

If you do end up selling your company, it is because you consider that you have either got the best possible price or at least a price that you consider acceptable under the circumstances. It is possible that, not having managed the process well, you might have inadvertently lost a lot of value.

Consider a business owner who wishes to sell a firm with an embedded value of $20 million. If the buyer is an acquisition specialist and the firm owner (the seller) decides to bargain alone, without the assistance of an M&A counsel, the deal is likely to conclude for $15 million or less. Remember that experienced buyers might use a variety of strategies to wear you down and confuse you in order to obtain a lower price.

If, on the other hand, the seller decides to professionalize the sales process, he will be able to sell his company for more than $25 million. He will prepare the company for sale with the assistance of an M&A advisor, bringing thoroughness  to the process via well-prepared documents that highlight the most valuable aspects of the company, he will look for and find buyers willing to pay the most because they are the most interested, and he will increase competition between them so that their offers increase. His advisor, an experienced negotiator, will ensure that the price is maximized while also protecting his client’s interests.

Experience has taught us that a well-managed and well-executed sales process has a significant impact on the final price and terms of a transaction. By selling your company, you are converting years of work and effort into value, and you have the potential to create or destroy a large portion of its value in a short period of time. It is entirely in your hands.