No-one in their right mind rushes into the final ascent of a mountaineering expedition. The risks and opportunities involved when selling a business deserve no less forethought.
Unfortunately, most M&A advisors lack the interest or sell-side expertise to produce remarkable results. Preparing to sell a business, if compressed into a few weeks at the start of a business sale process, can never be as effective as well planned preparation undertaken over several months, encompassing data gathering, research and the tailoring of marketing materials to individual buyers.
When preparing to sell a business, Shield recommends thorough groundwork along the following lines, wherever possible:
In order to be able to market the business to potential buyers, the sale advisor needs a comprehensive understanding of the business. This understanding cannot be acquired through a cursory examination of the financial statements and a few hours meeting with management. The advisor needs to understand the business's history, the issues it is currently grappling with, as well as potential opportunities that could be pursued, in order to help identify, quantify and articulate growth avenues and future potential to interested buyers.
Many banks print out standard industry lists of potential buyers which are easily prepared at short notice. When selling a business, Shield takes a different approach.
Shield has a dedicated Research Department that does nothing but develop tailored buyer analysis for companies to be sold. Our custom research provides detailed lists of first, second and third tier buyers grouped by industry and geography.
We pride ourselves in thinking "outside the box" when analysing potential buyers, and although the seller is likely to have a good idea of who might like to purchase his business, we are confident of unearthing buyers that you would not have thought of.
There are many advisors who can knock out a quick valuation based on a mechanical discounted cash-flow or multiples analysis. However, the real value added in any business valuation exercise begins with a thorough understanding of the business and its revenue and cost drivers, together with its position in the competitive landscape in which it operates.
This understanding is then used to tailor the more mechanical aspects of the valuation process, and can only be gained by spending extensive time in researching the company, its management, and its place in the industry. The resultant value estimate needs to encompass both stand alone value, and strategic value in the hands of each potential buyer.
The primary document that will be used by buyers to learn about and assess your business is called the Information Memorandum (or 'Info Memo'). This is a comprehensive document that Shield compiles (with your help) when selling a business in order to fully introduce and explain your business and its merits.
Typically the Info Memo will take a number of weeks to finalise - any shorter and you risk going to market with a document that does not do full justice to the opportunity offered by your business.
Progress made in promoting the company during the marketing phase can easily be undone by sloppy or hurried due diligence preparation. The seller needs to understand exactly what information should be presented during due diligence, and what should be withheld. There is a fine line between showing too much and too little. Buyers will seek to extract as much information from the company as possible, whereas it might not be in the seller's interests to show too much (in order not to weaken its competitive position). We will advise you what is appropriate, and make sure you are well prepared to withstand the scrutiny of potential buyers during due diligence.