A hefty mix of collating information and corporate housekeeping will steer your company clear of deal-threatening delays. Caroline Belcher advises companies on the four steps to help the sales process go smoothly.
Preparing for the sales process is vital to ensure a smooth transaction. This includes a number of key actions, such as collating information to ensure your business passes rigorous due diligence checks carried out by prospective buyers. Undertaking essential corporate housekeeping on the companies’ assets and contracts will keep everything in order and up to date. Price chipping and deal-threatening delays can occur if these two areas are not addressed.
The below focal points will help ensure that your pre-planning is completed and the sales process goes smoothly.
Bolster your finance function
A robust, well-staffed and capable finance function is vital to the successful sale of any business, as buyers will require a host of detailed information. Thus, having a capable finance director (FD) is key. It is important to appoint one at least 12 months before the scheduled sales so that they can guarantee any financial issues raised by buyer due diligence will be resolved quickly and efficiently. While advising on the sale of Finsbury Orthopaedics Ltd, a global distributor of orthopaedic implants, we brought in an FD in the early stages - this ensured the efficiency and success of the sales process.
Prepare a checklist
To prepare your company for sale, a "grooming checklist" needs to be drawn up of areas that should be addressed to satisfy due diligence. These include: general management, legal, HR, accounting and audits and risk assessment.
More often than not, buyers will focus on the company's profit and loss, cash-flow and balance sheets of the past three years. Therefore, forward planning must include three year forecasts to be drawn up alongside a business plan with a clear financial model.
Although buyers are keen to check past figures and balance sheets, they also want evidence of the potential for growth within your business. Providing a geographic, product, business and client split of total revenue identifies the areas of your business that are performing well and which areas need work. By presenting both strong and weaker areas – include planned measures to improve those areas - they will not be unearthed by the due diligence process, which may prompt the buyer to reconsider.
Conduct corporate housekeeping
Once the financial due diligence criteria have been satisfied, good corporate housekeeping should be undertaken, working capital needs to be reviewed and attention should be paid to excess cash and property/assets.
The following are the key issues to consider:
Ascertain whether the additional property and assets form part of the sale process or whether they are to continue under personal ownership;
Tidy up your corporate and shareholding structure, particularly for the technology and IP side of the business. Make sure that you own the IP as this may complicate the process if the ownership is disputed;
Resolve any outstanding legislation/disputes that might damage the company’s reputation. Review all contracts, including client and supplier contracts, and make sure that there are no irregularities that might be cause for concern;
Examine all HR contracts, retention, options schemes, employee taxation and property valuations - if included in the sale;
Update your website, brochure and logos to ensure consistency throughout the business and present an organised structure that will appeal to buyers; and
Check your environmental compliance and other compliance issues - this is increasingly important as regulation is becoming more extensive.
Although this extensive process might not add significant value to your business, it will make for a much smoother sale process and will avoid delays, interruptions, valuation decrease or even failure to sell.
Research and attracting buyers
Having positioned your company for sale, it is important to conduct your own research on the buyers before the process begins. Find out what you can of their financial history to make sure that you are entering into negotiations with a financially sound business/individual with the ability to deliver. Look at their position in the market and whether they have made recent acquisitions to assess their suitability. Their reputation in the press is also important because if they are known for leaking deals or attracting negative press, it could jeopardise the sale.
In order to attract a strong group of prospective buyers, consider the PR possibilities to obtain coverage in the relevant market, which will enhance the profile of your business. Company awards, honours and employee awards also help to build national reputation.
This level of intense preparation will help ensure that the sales process goes smoothly and that the price achieved is as close to your target as possible. Reassuring buyers that everything is in order is worth the trouble and pays dividends – literally.
Caroline Belcher is partner and Head of Exit Planning Practice at Cavendish Corporate Finance.