M&A

How to get your business Exit Ready

04.08.2022

Chetan Shah has over 20 years of experience selling businesses across multiple industries. In this article, he shares his expert advice for preparing your business for a successful sale.
Get clear on your motivation

Before thinking about an exit, it’s essential to understand and articulate your motivations. This is a crucial part of the exit puzzle and will help you better assess every opportunity that comes your way.

It’s through this initial phase that your team of advisors will get a better understanding of the potential duration of the sales cycle, probability of deal success, any risks and sensitivities, as well as the unlikely involvement of a shadow decision-maker (e.g. a family member or a trusted accountant). Why is this important? Time, effort, and money can be avoided if we understand how decisions will be made and who needs to be part of the decision-making. For example, it is important to include key trusted advisers whether that be accountants, lawyers or other advisers.

Ensure you’ve got all your documentation in order

This next step is all about getting information together to give prospective buyers and advisors a quick and easy understanding of your business. Documentation such as audited financial statements from the past three years, documents of charter (articles of association etc.), your written description of the business, product/service brochures, and other documentation will give a clear understanding of the business model and the value chains. You can also include information about your market, customers, suppliers and competitors. This all might sound overwhelming, but our teams are there to help!

Develop a LONG! list of potential buyers

Splitting the buyers’ list into (a) strategic (also known as trade) buyers or (b) financial investors, is an excellent way to get started. It’s a good idea to think creatively about who could be on these lists – from direct/indirect competition and domestic and overseas peer group businesses to critical suppliers and customers. You can also think like investors and ask, “Why would this company be attracted to my business?”.

Your advisor will also run their own database search for potential buyers that you may have missed out on.

It’s also a good idea to highlight the high-quality potential buyers ie those with greater financial ability, better management, more significant market share or global presence, a previous record of buying businesses and those who would benefit strategically from purchasing the company.

Build your Data Room and Investor Deck

This is a crucial step in the vendor due diligence process. It is valuable to hold a day-long intensive sessions with the founder, CEO, CFO and operations head for a deep dive into the business model and department functions (namely finance, supply chain, infrastructure, technology, marketing etc.) This is my favourite part of the sale process as I act like a potential buyer and ask questions from a buyer’s point of view. I love hearing owners and CEOs get excited as they talk about how they have grown their businesses and what the future looks like.

These sessions help us get to the nitty gritty and gather the relevant information and specific documents required to build out the various sale documents, such as an investor deck and information memorandum, business plan, financial model etc.

Bring your team together

Now, it’s time to appoint M&A lawyers and other experts. M&A lawyers are expected to perform two key roles. The first one is to undertake legal due diligence on the business and take corrective action to ensure that irregularities, if any, e.g. with asset titles, are set right before the buyer finds it a risk area.

The other role is to advise the client on legal aspects of the term sheet, including critical terms of a possible deal, and more importantly, draft and negotiate the fine print of the detailed sale agreement to protect your commercial interests and post-sale financial liabilities.

You can ask your Advisor to help with the vetting process of presenting three different options from experienced and reputable law firms to provide a competitive cost estimate and a timeframe. Technical or market research consultants can also be appointed using a similar process as needed.

What happens next?

Once you’ve completed most of your preparation phase and whilst the data room process is still in progress, your Advisor will start approaching potential buyers on a ‘no name basis’ – the seller’s identity is kept confidential. Only generic information is shared in the teaser, which ideally makes the vendor untraceable. This confidentiality is sacrosanct to maintaining undisturbed business operations, preventing insecurity among employees, financers and customers, and protecting the business’s value.

You’re now ready to get to the pointy end of the sales process, which includes various seller-buyer meetings, deal discussions and negotiations. In my next article, I’m sharing how to make your exit plan a success.

If you have questions about how Active Directions can help you get your business exit ready, email info@activedirections.com.au for a confidential conversation.

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