How To Sell A Company
How To Sell A Company
Many company owners wonder how to sell their company. It’s a good question and certainly every business owner thinks about this topic periodically. In our mind, it’s not only a question of how to sell their company; it’s how to sell it for the maximum value and best terms.
The actual process is not that complicated, but there are many pitfalls. Many owners think that they know who the most logical buyer will be when the time comes. But, they’re always disappointed later when that buyer isn’t interested or makes an impossibly low offer. The other major mistake that’s made is to share information without a Non-Disclosure Agreement.
Versailles Group has handled a number of engagements where the owners had started the process themselves and then realized the problematic nature of that. Most business owners don’t have the time to devote to developing the buyer list, creating the materials that need to be shown, or to deal with the demands of the buyers. However, what has been even more astounding is to learn that these normally careful business owners have shared sensitive company information without any protection.
When selling, the most important thing is to have a Non-Disclosure Agreement (“NDA”) with the buyer. It’s always best to have an M&A NDA, which is different than a standard agreement. While a standard agreement may protect the information, there are many other items that should be included.
Beyond the NDA, the seller should have a strong list of potential buyers. An experienced M&A advisor or investment bank will know how to assemble a list of this kind. A good list will go well beyond competitors and known companies in the seller’s market. Versailles Group has sold a number of businesses to buyers that would be well beyond the normal lists created by others. We view the world as our territory, and we look for buyers that may be slightly outside of our clients business. This creates additional demand and these “other” buyers frequently pay more because they need to access to the market, the products, the technology, etc.
A strong buyer is one of the key ingredients. The other is clear documentation that shows all of the USPs or Unique Selling Points of the company. An M&A advisor will know what buyers are looking for in this type of presentation and know when and how to convey it. This is an art that is developed over the course of many transactions and many years of experience.
Once the buyers have the appropriate information, and if there are multiple buyers, an auction can be created. This is a silent auction and totally confidential. It enables the seller to derive extra value or enhanced terms from the transaction. Offers are usually stated by the buyer in terms of a Letter of Intent.
Once the Letter of Intent is executed, the buyer will conduct thorough due diligence. A good M&A advisor will be able to help their client manage this process. At some point, the buyer will produce a Definitive Agreement. Sellers should pay close attention to the terms and conditions, particularly the representations and warranties. This is a critical document in the process. Versailles Group, as a result of its years of experience knows what should and should not be in a document of this type. It’s also important to know how to negotiate these documents. That’s critical!
Most transactions are a simultaneous sign and close and that will be the day that the consideration is conveyed to the seller. If done properly, it’s a happy day for both parties.
More information on how to sell a company can be obtained by contacting Versailles Group directly.
