The Selling Process
So you’ve shaped the business for sale and now it’s time to press the ‘sell’ button. What actually happens?
The first step, and a good adviser can be a real help here, is to identify:
- Realistic value ranges
- That it’s absolutely the right time to exit
- The best tactics to employ
- How to optimise the value
- Tax implications
Your first major decision is then whether to employ an agent or broker to undertake the process on your behalf or whether to go it alone using a trusted team, e.g. your company lawyer and accountant, around you.
There are a multitude of agents and corporate finance houses out there vying for the business. Each will typically charge an upfront commitment fee plus a percentage of the sale value. The great benefit of using an agent is that they can save a huge amount of your own time by undertaking much of the research, document drafting and negotiation on your behalf but you will have to judge whether the cost – likely to run into tens of thousands of pounds – is worth it from your own perspective. Remember that you will still inevitably have your own lawyers and accountants fees to pay albeit they may be reduced to some extent. Your existing team will also know your company and your goals better to start with.
If you feel, for example, that you probably already know any likely buyers from relationships you have within your own industry, you may feel that you can undertake and run the sale process without the need for an agent. You must be prepared to accept the amount of your own personal time the negotiations will take though – it is almost always far more than may be imagined.
The next major decision is determining the deal structure you would be comfortable with. Structures normally take the form of:
- Cash in full on completion
- Deferred payments
- Earn outs
- Investment/elevator deal
Whilst the natural instinct of most people is to want cash on completion, this deal structure is relatively rare for many reasons, e.g. level of risk to the acquirer, your own desire to continue working in the business, etc.
Whether you’ve decided to employ an agent or not, the typical sale process will proceed along the following lines:
Preparation of a Sale Memorandum
This is a document that will be circulated to potentially interested parties and outlines why the business is being sold, its financial history, the operational environment, the key assets, market positioning, new initiatives and future trading forecasts.
It is usual to ask for indicative offers by a deadline. These are totally non-binding and the reason for so doing is really two fold: (a) to narrow the field to serious parties only, and (b) to gauge whether final offers are likely to be in the desired value range.
Heads of Terms
From the indicative offers one potential acquirer is generally selected and Heads of Terms drawn up agreeing the basic principles between the parties such as the deal structure. Again, this is non-binding and subject to due diligence being undertaken. Commonly a period of exclusivity will be agreed upon at this stage whereby you will not talk to other potential acquirers.
The buyer will do extensive checks on your business to ensure it is as stated in the Sale Memorandum and to reduce any potential risk. Typically, due diligence will cover legal, financial and commercial aspects.
This is where you need to have ensured that you have done your work before hand and that it is as accurate and watertight as possible! Nothing turns a buyer off more than unearthing incorrect information.
Legal Documentation and Deal Completion
The terms from the Heads of Terms adjusted for anything that may have arisen from due diligence and further discussions with you, will now be drafted into a formal Sale and Purchase Agreement which, once signed, is legally binding and completes the deal. There may also be supplementary documentation such as a Service Agreement if, for example, you are to continue in the business for a period of time.
Contact us if you’re considering selling your business or wish to know more about the process in general.