Sell side advisory
Selling your business?
Making the decision to sell your business is not only one of the most significant financial decisions you will ever make but an important decision which will involve a high level of stress and anxiety. You have invested considerable time and effort in building your business therefore its sale probably holds the key to a secure and comfortable future. It is therefore essential to get it right.
BDO Corporate Finance can help sell your business and streamline the sales process so that you don’t get lost in a mountain of paperwork. Broadly the sale process involves:
- Grooming the business for sale
- Indicative valuation
- Going to market
- Completion of transaction
Grooming the business for sale
The objective of this phase is not just cosmetic enhancement but real operational change if this is necessary.
Where practicable, time and size permitting, developing a sound first and second tier management team will greatly enhance the value of a private company. It helps demonstrate that you are not critical to the business and reduces the buyer’s investment risk.
On the financial side it is important to review the following:
- Accounting policies – these need to be aligned with industry standards.
- Identifying non-recurring expenditure – highlighting these adjustments and focusing your potential buyer on the underlying earnings of the business is essential.
- Incurring significant capital expenditure – generally it is sensible to continue to invest in the business as if you were going to continue to own it in the future.
- Forecasts – credible budgets and longer term forecasts can enhance value enormously. They should be underpinned by reasoned assumptions, perhaps by customer and product and be prepared on a bottom up basis with full involvement from the management team.
Indicative valuation
Ultimately a business is worth what the market is willing to pay for it. However, to assist a client in making the decision to sell, an indicative valuation is worthwhile.
We are well versed in a variety of valuation techniques. Each transaction is different in its own right and the valuer must select the methodology that is most appropriate in the circumstance. It may well be the case that a number of techniques are selected and an analytical comparison made.
Going to market
The key to a successful process is maintaining confidentiality, controlling the information flow to potential acquirers and dictating the timetable. In our experience, a focused, competitive process drives value. We will manage all aspects of the sale process and allow you to focus on running the business. Trading performance is critical during the process as potential acquirers will use a downturn in trading to renegotiate the process whereas robust trading will give acquirers confidence.
The team at BDO will co-ordinate the whole process during the period as there are often a large number of parties and other advisers involved and you will have to cope with the demanding provision of information for the due diligence process.
Key stages in the process
Research into potential acquirers
Identifying potential acquirers is a critical part of the process. You will have specific views on who you want to approach and those you do not want to include in the process. The BDO Corporate Finance team can source potential acquirers through our international reach, and firm wide deals, and utilisation of numerous databases. We will identify potential acquirers based on the criteria discussed with you.
Information memorandum
The information memorandum is the principal selling document. It must create immediate impact and present your business enthusiastically in a clear and accurate manner. The document should provide potential acquirers with enough information to make a reasonable assessment of your business and allow formulation of an appropriate purchase price.
Approaches
Once a list of potential acquirers has been agreed with you, we will make approaches on a no-name basis. Disclosure at this stage will be restricted to outline the business sector, turnover profitability and the key selling points of the business. This information is generally displayed in the form of a teaser brochure. All potential acquirers will sign a confidentiality agreement before receiving the information memorandum.
Management presentations
Management presentations give us the opportunity to meet potential acquirers face to face and to give the acquirer our view of the key value drivers of the business and to update them on current trading. The meeting will also give us more detail on how potential acquirers intend to approach the transaction and to discuss more commercially sensitive issues.
Indicative offers
The first round offers will be based on the information memorandum. We will provide guidance in terms of the deal you are looking for and the preferred deal structure. Once indicative offers have been received on the business we will agree a short list of preferred bidders who will be given the opportunity to meet management.
Revised final offer
We will lead negotiations with short listed buyers and manage the relationship with them through to final offers. We will be leveraging the competitive tension created in the process while using our negotiating skills to drive the price. Our focus is always on positioning the business in the best possible light, building competitive tension and forcing buyers through a controlled process. Once we have fully negotiated the final offers we will grant exclusivity to a single party for an agreed period upon signing the heads of agreement.
Exclusivity and contracts
Once heads of agreement have been signed and an exclusivity period granted the purchaser will instruct its accountants and lawyers to undertake an in-depth investigation of your business. This is financial and legal due diligence.
Vendor due diligence
Once the acquirer has been determined BDO Corporate Finance will coordinate the due diligence process which will include management/vendor meetings and access to a physical and/or electronic dataroom. This area includes both financial and legal due diligence with the results often used by the purchasers to attempt to renegotiate the price. Due diligence may be widened to cover such areas as property, environmental, IT and HR issues depending on the complexity of the business.
Lawyers on both sides will then draft and negotiate the formal legal documents to effect the transaction, primarily the Sale and Purchase Agreement but also any financing documentation required and service contracts for the directors, if applicable.
The business sales service offered by BDO utilises internet based resources to automate the process for clients. Our ability to conduct business sales online allows us to effectively and efficiently manage local, national and international acquisitions.
Why choose BDO?
BDO has a significant amount of experience in managing sales processes with a proven track record of successful transactions. Closing the transaction is a result of working with the client to tailor a sales process to their requirements. For further information about business sales please contact your local BDO Corporate Finance adviser.