In the first instalment of this series we explored how a seasoned consultant can support business owners in the early stages of a company sale. In the second instalment we explored how expert operational and strategic support can help a business owner identify, prioritise and implement initiatives to maximise profit in a short amount of time, craft a viable growth strategy to increase the company’s appeal to prospective buyers, and prepare it for the due diligence (DD) process. In this third and final instalment we explore how, having launched the sale process, a consultant can act as an advisor on a wide range of complex aspects. All of these will affect the final value achieved, including acquisition price and form of consideration, for your business.
Whereas well-seasoned financial sponsors or a large corporates with in-house M&A capabilities can sell business largely unaided, most SME owners will benefit from appointing a corporate finance advisor. These prepare company valuations, financials models, marketing materials and manage the sale process. Whilst some of these activities may appear to add limited value, preparing detailed materials with consistent messaging is very time consuming and important when endeavouring to project the image of a well-run company which will not give a buyer problems once acquired. You will also need to consider appointing legal counsel and possibly financial advisors for the preparation of vendor DD and to conduct tax structuring.
Finding holistic advice
You may also require a market or strategic consultants to prepare a feasibility study or report to support the growth plan you will have prepared as part of the sale process. Depending on the industry you operate in you may need asset, insurance, governance or environmental advisors to provide supporting analysis as part of your sale pack.
Appointing advisors can be a time consuming process – from deciding what to externalise and what to undertake in-house, shortlisting advisors by service offering, holding beauty parades, preparing and issuing short-form requests for proposals, assessing and reviewing these, selecting advisors, negotiating terms and finalising contracts all require a significant amount of your time and experience, neither of which an SME owner normally has.
Managing the Due Diligence Process
Once a sale process has been launched there is no turning back – an aborted process will raise questions and typically mark the business as a tainted asset, possibly for years. Similarly, a sale process that grinds on due to lack of preparation will destroy through several mechanisms. It is imperative that you and senior management spend as much time as required preparing for the DD process ahead of launching the sale. You, management and your advisors should be entirely prepared for the DD process ahead of contacting prospective buyers and launching the sale. Only then will you be able to ensure you navigate DD rapidly and to the satisfaction of prospective buyers.
How to utilise M&A advice
It is invaluable to ensure you receive high quality advice from an experienced M&A practitioner at this stage of the process. For example, you will not want to share all information with all prospects at the same time, if at all with some (such as direct competitors). You will have to manage a balancing act between ensuring you are not disclosing your unique differentiators/selling points whilst trying to provide evidence of the acquisition value you seek from a sale. The content, time and manner of information dissemination are also important tools in creating competitive tension to elicit the bids you favour. A well timed presentation or Q&A session, the release of a key piece of information on a restricted basis, or an enthusiastic (or frosty) response at times all serve to send different signals to specific buyers to ensure a healthy roster of prospective acquirers are kept interested.
How to handle problems
Whilst serious bidders will not necessarily attempt to merely chip away at a valuation, they are focused (as a result of fiduciary obligations and financial incentives) on ensuring they know what they are buying and do not overpay for the business. You should assume any problems with your business will be eventually uncovered – just like you should, buyers will typically also have their own advisors (including consultants) whose mandates will include these problems. It is often more productive to work with your consultant to disclose problems to buyers before they discover them, thus enabling you to position these accordingly and prevent any erosion of trust between the parties. Having a consultant provide advice on these more delicate aspects of the DD process means that as you enter commercial negotiations you are not on the back foot with doubts cast around your willingness to disclose pertinent matters.
Whilst price and consideration structure agreements in principle may have been reached early on during discussions, as the DD process enters its final stages, attention will turn to the commercial impact of DD findings and to detailed negotiations. M&A negotiations are as much about financials as about soft diplomacy, with multi-faceted fluid tactics consistently providing you with a considerable edge regardless of how well the numbers may have been ‘crunched’. A seasoned veteran with a track record of successfully negotiating and closing deals can impart a vendor (and a buyer for that matter) with precious advice on tactics throughout the process. From more fundamental advice such market practice and recent trends, to the timing of when to table demands, give in to requests or compromise, knowing when to close a deal, hold back or walk may, in the heat of the home stretch, give the valuation a significant boost, improve the consideration structure or reduce your risk retention. However, without timely advice it could be you who is creating such opportunities for the acquirer without realising it!
Concluding your sale
Having decided to sell your business and spending a significant amount of resources implementing profit maximisation initiatives, developing growth strategies to evidence your company’s future value and preparing for the DD process, it must all be brought together and executed optimally.
From selecting advisors to managing the process and ensuring negotiations are conducted diligently, a consultant that has the necessary competencies and earns your trust to act as advisor during the final stages of a sale, should ensure that the culmination of your efforts during your ownership of the business are monetised fittingly and are cause for celebration.
Get in touch with Talmix to find out more about using independent consultants to prepare your business for sale.
About the Author
José has over 15 years of private equity, private debt and investment banking experience at blue chip institutions across Europe. His experience includes sourcing mid-market acquisition opportunities, executing on these, conducting due diligence, spearheading commercial negotiations and transaction documentation, closing acquisitions and managing portfolio companies. This experience includes developing and implementing organic and acquisitive growth strategies (including buy & builds/industry consolidations), cost rationalisation and optimisation programmes and cash conversion improvements. José is also experienced at raising capital, including equity and debt through direct lending strategies, as well as structuring alternative investment funds in Europe.More Content by José Benedicto