By Kison Patel
Over the past decade, I’ve had the opportunity to work with countless executives and CEOs undergoing the extremely complex, all-consuming, and intricate process of selling their company.
As the CEO and Founder of a software platform that helps manage mergers and acquisitions (M&A) and as a former M&A advisor, I’ve witnessed a variety of successful exit strategies, along with a handful of unfavorable outcomes.
Ideally, M&A transactions benefit all stakeholders, employees, and the overall strategic growth of the acquirer as well as the captured asset. However, planning and executing such an acquisition requires organization, proficiency, know-how, and an extreme amount of focus.
These ventures are as time-consuming as they are intricate. While executives concentrate on conducting a successful transaction, they must still perform their responsibilities of running an organization. This balance can be extremely difficult to master.
This is why I’ve compiled a list of 10 actionable steps built from my industry experience that can clarify and organize the process for executives in the midst of an acquisition.
1. Clearly define the goals of the sale
Assuming that your organization is in the appropriate stage for such a transaction, selling a company can be an incredibly advantageous exit strategy. The first step of any sale is to clearly define the goal. Why do you want to sell your company and how would you like your asset to evolve in the hands of its acquirer?
Identifying both the financial and strategic motivations will allow you and your team to remain focused on the bigger picture, unite efforts, and lead to better decision-making. This goal should become somewhat of a “North Star” for your transaction.
The goal of your exit will likely define the types of buyers you are interested in pursuing. If you’re selling your organization mainly for financial reasons, a private equity firm may be your best option. However, if you’re looking for a more strategic exit, as you’d like to see your product grow and develop, you may be looking at more transformational buyers like Google or Amazon.
Consider the strategy for why the company is being sold and what you hope for the future of the asset you created and fostered. Establishing this story will clarify your intent, strategies, and marketing.
2. Decide on an appropriate value
Naturally, the next step is to evaluate what your asset is worth and decide on an acceptable offer range. Organizations can conduct such an evaluation in a few different ways. However, I highly suggest obtaining an assessment from an investment bank, whether or not you plan to use them for the transaction itself. This will allow for a thorough, unbiased, and knowledgeable assessment of your company or asset.
Such an evaluation will provide leverage during negotiations and aid in decision making.
3. Value enhancement
It is highly beneficial for an organization preparing for a sale to go through a value enhancement process. This simply means addressing and strengthening any underperforming or vulnerable areas within your organization. You may be acutely aware of these problems or they may be introduced during a formal assessment. What actionable steps can you, as an executive, make to enhance the value of your company?
Much like staging and renovating a home before putting it on the market, the goal of this step is to ensure you are presenting buyers with the strongest possible margins, operations, and messaging.
4. Prepare due diligence material
Due diligence is perhaps the most tedious and time-consuming aspect of selling a company. Collecting the appropriate information and answering endless buyer requests requires the attention of executives across all functions of your organization.
Before engaging buyers, I highly suggest you prepare and gather any documents that may be requested during diligence. This includes any legal, financial, and operational documents as well as written contracts such as non-disclosure agreements.
Preparing this information will allow for a smoother, more efficient process so that your organization’s executives stay focused on operational needs.
5. Identify potential acquirers
Identifying potential acquirers is a helpful next step in preparing for a sale. Luckily, there are endless resources available to conduct such research such as PitchBook, CB Insights, S&P Global Market Intelligence, and even LinkedIn.
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Determining potential buyers will enable you to better focus your marketing tactics and create a more tailored teaser or company one-pager for stronger engagement. If you are working with an investment bank, they will pitch your company anonymously to selected targets and allow interested parties to sign non-disclosure agreements to view select, high-level information and your company and the deal.
6. Shortlist buyers and prepare
Buyers truly interested in pursuing the deal will often provide you with an Indicator of Interest (IOI), which will include the range of purchase price, deal timing, and strategic vision. This IOI will allow bidders to look at more in-depth information about your company and the potential sale. Naturally, this process will also weed out disinterest buyers.
From here, you should develop a shortlist of buyers. When looking at the provided IOIs, consider the overall goal of the deal. Which potential buyer’s initial offer is most in line with your financial, strategic, and personal vision? Many times, sellers will meet with interested bidders in order to learn more about their organization, intent, and overall compatibility.
Ideally, in order to negotiate the true terms of the deal, you should narrow prospective buyers down to one or two companies.
7. Prepare and negotiate deal terms
Now, it’s time to negotiate. A select few bidders will offer a Letter of Intent (LOI). Unlike an IOI, this document is more binding and includes specific deal terms, acting as a guiding contract for the transaction. This contract signifies a serious commitment from both the seller and buyer and will typically include purchase price, deal timing, escrow payments, and transition strategy.
Negotiating a strong LOI is extremely important to deal success. Referring again to the strategic intent of the sale, prepare multiple scenarios for the LOI negotiation and collaborate with the bidder on equitable terms.
8. Assist in conducting efficient due diligence
After deal terms are decided, more intense diligence will begin, and preparing that initial material will prove extremely helpful. However, buyers will likely request a significant amount of additional information. Developing an efficient process for how these requests will be assigned, answered, and organized is vital for a quick and efficient process.
9. Purchase agreement: Close and hand off
Once due diligence is complete and a decision is made, you will sign a definitive agreement with the selected buyer. This purchase agreement marks the end of negotiations and the close of the deal.
As an executive, it is now important to develop a plan on how to communicate this transaction throughout your organization. With transparency being the most critical aspect, it’s your job to make sure employees know what to expect from the sale and the integration process. This understanding will allow for a more successful and efficient transition period.
10. After you sell your company, consider transition
Depending on what was decided on in the final agreement, as the CEO or executive, you may have an important role in the transition period. Whether you’re staying on short-term to assist with integration, or you’re occupying a new role within the organization, it is helpful to prepare yourself and your former employees for this cultural and operational shift.
Selling a company, although rewarding, is a complex and all-consuming process. Following these 10 steps can help provide needed guidance and hopefully lead to more successful outcomes.
RELATED: A Comprehensive Guide to Due Diligence Issues in Mergers and Acquisitions
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