How to Navigate the M&A Process When Selling Your Business

The Merger and Acquisition process can be daunting and unfamiliar territory for business owners. Selling a business requires meticulous planning, financial analysis, legal considerations, and effective integration strategies to ensure a successful transition and value creation for all stakeholders involved.

This two-part blog post details the entire selling process, including strategies that can maximize the value of your business.

Part I: Selling Your Business101

Navigating the M&A Process with Experts you can Trust

When you’re considering selling your business, you want to collaborate with experts capable of developing an M&A strategy that focuses on finding the most suitable buyer who offers the business the best value. 

An M&A strategy designed around your goals and objectives creates a personalized plan rather than trying to implement a templated process that may miss unique aspects of and undervalue your business assets.

Setting Objectives and Understanding Your Goals

One of the first decisions you want to make is what your goals are for selling your business.  Clear objectives keep you and your advisor on the same page and working toward a mutually beneficial agreement. Unclear objectives waste time, confuse potential buyers and may scare off other buyers who could be a great fit. Setting and communicating clear objectives makes the entire sell-side M&A process more efficient, effective, and beneficial for everyone involved. 

The decision to sell is a big one to make, and it is often filled with a mix of both emotional and rational thoughts. A trusted M&A advisor, like Objective, will bring the experience you seek in gaining clarity and understanding as it relates to your goals and options for selling. Your M&A advisor is indispensable in early conversations to help identify pitfalls, risks, and potential changes in heart that you or the buyer may encounter. 

An Overview of the Mergers & Acquisition Process

Once you’ve determined your goals, it’s time to enter the M&A process. Objective offers a thorough process that is refined and time-tested based in strategy and sector specific knowledge. The list below offers an overview of a thorough M&A process. Later in this article, we’ll reveal more detailed considerations for each step of the following process:

 

1. 1. Prep Work: Before reaching out to potential buyers, it’s important to review your assets, strategies, legal documents, financials, and the future potential of your business. This helps present your business in the best light and reduces the chance of surprises down the road. 

1. 1. Identify Buyers: Your advisor will then help you identify potential buyers and narrow the list down to the most promising options. When you work with Objective, we will also tap into our network and add experienced buyers to the list. 

1. 1. Begin Negotiation: Once a buyer says they’re interested in learning more, the negotiation phase begins. During negotiation, your advisor will help you explore deal terms, valuations, and other considerations that indicate whether each interested buyer is worth engaging. 

1. 1. Offer Selection: After reviewing your offer(s), you can select one and agree on the terms, or you can return to the buyer identification step and reach out to new potential buyers. 

1. 1. Due Diligence: When you’ve selected an offer and agreed on the terms, due diligence begins. In this stage, the acquiring company digs into the seller’s finances, structure, assets, operations, and market share to verify your claims. 

1. 1. Contract Development: Once they’ve completed due diligence and are happy with what they’ve seen, a legally binding contract is drafted. This highly detailed document provides detailed descriptions of all the terms and conditions of the merger or acquisition.

1. 1. Contract Signing: When all parties agree on the contract and terms, it’s time for final approvals and signatures. 

1. 1. Integration: After finalizing the deal according to local and federal regulations, it’s time to integrate the two organizations. 

It’s crucial for those considering a merger or acquisition to note that most stages will likely include multiple conversations and offers/counteroffers. Each step requires careful attention, collaboration, and expertise to navigate potential challenges and maximize the benefits of the transaction for all parties involved. 

“Throughout the M&A process, we’re often faced with the task of aligning clients’ objectives with potential buyers’ expectations. Negotiations play a critical role as we work to strike a balance that benefits both parties.” – Dan Shea

The sections of this article that follow are designed to educate a business owner that might be curious to learn a bit more about their own potential journey and timeline for selling. M&A is a complex and time-consuming process that can pull you away from other tasks essential to maintaining a successful business, especially considering that most business owners only experience one large merger and acquisition transaction in their lifetime. Partnering with an experienced sell-side M&A advisor like Objective reduces the burden on sellers and allows you to sustain the value of your business during a merger or acquisition. 

Part II: A Detailed Guide to the M&A Process Timeline

Laying a Solid Foundation for Your Sell-Side M&A Process

On average, the entire M&A process timeline can take six to nine months, with the most complex cases taking up to a year or longer.

The three key elements of a successful sale:

 

1. 1. Defining your goals-Objective’s first step of the M&A process is understanding your thoughts and feelings about selling. This in-depth conversation helps the advisor understand your goals and aspirations for selling. They can give you a clear sense of what is and isn’t possible and help you adjust your goals as needed. Clarity on what you’re seeking from the transaction and what you hope to achieve financially helps everyone get on the same page before proceeding.
   2. Determining the health and assets of your business– Our next step is preparing a Quality of Earnings (QoE) statement for your business. This statement is like a financial health checkup for your company. Our advisors examine your company’s earnings and financial performance to assess its stability and potential. It’s essential you and your advisor clearly understand the financial position of your company before moving forward in the sell-side M&A process.
   3. Reviewing existing business agreements and obligations-This critical step involves an intensive review of all contracts and foundational documents. It’s a complex step focused on a detailed review of legal agreements, contracts with suppliers, customers, and other legal documents related to the business structure and operations. Objective’s goal is to identify potential legal risks or obligations that might affect the deal. The thoroughness of this review will make or break the negotiation and due diligence stages, and we don’t recommend doing it without an advisor. 

Defining Your Objectives and Desired Outcome

Achieving your goals begins by clearly defining them from the very start. This crucial phase is the bedrock of any successful merger or acquisition, warranting careful attention. When approached thoughtfully, it not only directs your advisor effectively through the following stages but also streamlines the evaluation of offers from potential buyers. At Objective, our expertise as an investment bank ensures that this foundational step sets the tone for the entire journey, aligning your ambitions with the best outcomes.

Key considerations in outlining your ideal outcome:

 

1. 1. Explore different M&A objectives- Businesses are not one size fits all, which means the goals and desired results will vary widely. Many begin the M&A process while seeking retirement and a smooth exit strategy. Others sell to generate funds needed to develop a new project. Each objective requires a tailored approach to ensure the M&A transaction aligns with your goals. 
   2. Stay open-minded and flexible- Staying agile and adaptable is key during mergers and acquisitions. As you delve deeper into your company’s valuation and engage with potential buyers, your initial objectives may evolve. It’s beneficial to remain receptive to new insights and to give yourself the right amount of time to reflect on decisions. However, it’s also important to maintain momentum and avoid unnecessary delays in the sales process.
   3. Maximize Your Options In the preliminary stages, it’s wise to nurture multiple avenues, ensuring you have a breadth of options as you progress. Committing too early can limit potential opportunities, so it’s advantageous to keep viable paths open until the final agreement is solidified. After all, in the chess game of mergers and acquisitions, every move counts. Don’t tie your hands too soon; let Objective guide you in leveraging your position to its utmost potential.
   4. Set a realistic timeframe- Healthy pacing is essential for a successful M&A. While some deals may conclude rapidly, complex mergers and acquisitions can span years. Rushing heightens the risk of expensive errors. Remember, the key to pacing is balance: moving swiftly enough to seize opportunities yet methodically enough to maintain clarity and precision.

Valuation and Aligning Expectations

In the M&A selling process, the Valuation stage serves as a pivotal moment of clarity and insight. Valuation is like shining a light on the company’s financial health. It provides a comprehensive view of its assets, liabilities, and overall performance. Armed with this knowledge, sellers can make informed choices and mitigate unexpected challenges down the road.

The Valuation process hinges on two central elements: the assessment of your business’s worth and establishing clear, realistic expectations.

Conducting a Thorough Business Valuation:

An in-depth valuation delves deep into the financial intricacies of your enterprise, offering an unbiased perspective on the intrinsic value of your business. Central to this process is the application of realistic multipliers based on EBITDA. The aim here is not just to derive a numerical value but to capture the true essence of your business’s financial standing and potential. By doing so, it recognizes and factors in the unique characteristics, market dynamics, and nuanced specifics inherent to your particular industry.

Alignment/Adjustment of Expectations:

With a clear valuation in hand, it becomes essential to align or adjust your expectations. A valuation lower than anticipated might suggest the need to revisit and modify strategies, while a higher valuation can bolster confidence. Understanding the nuances of this valuation is key to positioning oneself advantageously in negotiations and proactively addressing potential challenges, ensuring a smoother M&A journey.

Objective’s Valuation practice excels in handling both intricate, defensible cases and more straightforward evaluations, ensuring every business gets the precise and tailored assessment it requires. This expertise, combined with our Sell-Side M&A practice group, provides a comprehensive approach to your business’s transition journey.

Assembling the Necessary M&A Documents

There are a significant number of documents you’ll need for a successful sale. The quality and accuracy of each can make or break your relationship with potential buyers. Each has a defined purpose and structure to present your business in the best light and protect your assets. You’ll also use these documents to inform your decisions when it’s time to accept an offer or counter. 

Top five documents you need for selling your business: 

 

1. 1. Quality of Earnings (QoE) statement- The Quality of Earnings (QoE) statement assesses the sustainability and accuracy of your company’s reported earnings. This information is crucial for making informed decisions about the feasibility and risks associated with the acquisition. It also allows you to identify irregularities or discrepancies that could put the merger or acquisition at risk. The QoE statement involves a detailed examination of your financial statements, revenue streams, expenses, and other financial factors that potential buyers want to know. It helps the potential acquiring company understand the seller’s profitability, cash flow, and financial stability. 
   2. The Offering Deck– An offering deck is a presentation or document prepared by your advisor to showcase the company’s key benefits and value proposition. A well-crafted offering deck is crucial in the M&A process as it serves as the primary marketing tool for the seller. It typically includes important information about the company’s financial performance, market position, growth prospects, competitive advantages, product or service offerings, customer base, and other relevant data. The offering deck effectively communicates the company’s value and engages potential buyers.
   3. Prospective Buyer and Potential Competitor Lists– Creating your potential buyer list involves thorough market research and a deep understanding of the industry landscape. This detailed work is best left to advisors with extensive experience in sell-side M&A for your specific industry. Their knowledge will create more relevant and accurate lists for your business. They will also help you identify potential buyers beyond your local market. Companies from different countries and regions may express interest in acquiring your business when it aligns with their strategic objectives.
   4. Financial modeling and projections-The value of your company isn’t just what it looks like today. Potential buyers are also interested in knowing what will happen after the sale. Financial modeling and projections provide valuable insights into its potential growth and profitability. It comprehensively represents the company’s financial performance, considering historical data, current financials, and projected future performance. This model serves as a foundation for the valuation process, as it helps determine the company’s worth based on its expected future cash flows, risks, and growth prospects. Projections can also identify potential synergies between the acquiring company and the seller, revealing opportunities for cost savings, revenue growth, and market expansion. This not only showcases your understanding of their concerns but also lays the foundation for trust.
   5. Company teaser-In the early stages of the M&A process, a teaser is often created to open conversations with potential buyers or investors. A teaser is a short document providing a high-level business overview without revealing sensitive or confidential information. It highlights the company’s key attributes, such as its industry, market position, growth potential, and financial performance. The teaser’s purpose is to share just enough information so potential buyers can decide whether to have a deeper discussion. A well-crafted teaser sets the stage for productive conversations in the M&A process, helping to identify qualified buyers who may be a good fit for the business.

“Crafting a compelling company teaser is an art in itself. It’s the initial spark that ignites buyer interest, prompting them to delve deeper into the opportunity.” – Dan Shea, Managing Director

Engaging with Potential Buyers

Now that you’ve laid a solid foundation and thoroughly researched the market, it’s time for your M&A advisory firm to reach out to potential buyers and gauge their interest. This stage of the sale may seem simple, but missteps could undermine your company’s value and reputation, so having an experienced sell-side M&A advisor protecting your rights and privacy for your confidential information is vital. 

Four key stages when engaging with prospective buyers:

 

1. 1. Lead with a Non-Disclosure Agreement- To protect sensitive information about your company, use Non-Disclosure Agreements (NDAs) when engaging potential buyers. NDAs provide legally enforceable protection that prevents the public sharing of private information you share during the M&A process. By establishing strict confidentiality protocols, sellers can mitigate the risk of sensitive information falling into the wrong hands. This preserves your deal’s integrity and protects the interests of all parties involved. Insist prospective buyers complete an NDA before you share private information about your business. 
   2. Follow up with a Confidential Investment Memorandum (CIM)-  Sharing a Confidential Investment Memorandum (CIM) is critical in presenting the opportunity to potential buyers. The CIM provides comprehensive details about your company, its financial performance, growth prospects, and other essential information that helps potential buyers make informed decisions. Sharing the CIM is typically done after potential buyers have signed the NDA, ensuring that sensitive data is disclosed only to qualified and trustworthy parties.
   3. Review Indications of Interest- When a potential buyer is interested, they’ll send an Indication of Interest (IOI). With help from your M&A advisor, you will review and narrow down the list to a select few that seem like a good fit. Negotiations begin in earnest with this shortened list of buyers. 
   4. Meet face-to-face- Finally, as the deal progresses, you’ll most likely invite buyers to meet with your company’s management team and tour its facilities. This interaction helps buyers better understand your company’s operations and culture. It allows potential buyers to assess the compatibility of their management styles and strategic visions, fostering a more meaningful and productive partnership.

Finalizing the Deal

It’s finally time to review your offers and decide who provides the best opportunity for you to achieve your objectives. 

Here’s how to navigate this stage of the sell-side M&A process: 

 

1. 1. Analyzing Letters of Intent (LOIs)- LOIs are non-binding agreements that buyers send explaining the proposed terms and conditions for the merger or acquisition. You may receive multiple LOIs to consider. Your M&A advisor can help you weigh factors such as the offered price, deal structure, M&A process timeline, and any contingencies. This process helps the seller gauge the seriousness and commitment of potential buyers. It allows sellers to decide on the most favorable offer to move forward within the M&A process.
   2. Due Diligence and Document Exchange– During due diligence, the buyer thoroughly examines your company’s financial, legal, operational, and commercial aspects to verify all information provided during the sell-side M&A process. Your advisor plays a massive role in this stage and will help you communicate transparently and openly, respond promptly, and provide all necessary information and documents to facilitate a comprehensive evaluation. Effective due diligence builds trust between the parties and demonstrates the seller’s commitment to a fair and transparent transaction.
   3. Final evaluation of buyers- Evaluating multiple buyers and closing the deal is the culmination of a well-executed M&A process. You’ve thoroughly assessed LOIs, managed due diligence effectively, and communicated transparently. Now it’s time to identify the most suitable buyer and negotiate favorable terms. Upon reaching an agreement, the final step is to close the deal, formalize the acquisition, and execute the necessary legal and financial procedures. A successful closing marks the beginning of a new chapter for the business and solidifies the foundation for a fruitful and mutually beneficial partnership.

Why Selecting the Perfect M&A Advisor is Crucial to a Successful Merger or Acquisition

While you can attempt a merger or acquisition alone, the steep learning curve can be costly to navigate without an experienced sell-side M&A advisor on your team. 

Six ways an experienced M&A advisor benefits you: 

 

1. 1. Industry Expertise: Choose a seasoned M&A advisor with deep industry expertise in your sector. Look for a strong track record of handling similar deal structures, staying abreast of current market dynamics, and having a firm grasp of trends shaping your industry.
   2. Deal Structuring: Advisors are crucial in analyzing the business and industry to design the most suitable deal structure, considering factors like tax implications, regulatory compliance, and risk management.
   3. Strategic Guidance and Market Expertise: Advisors provide valuable insights into market trends and the competitive landscape, conducting thorough market research and buyer analysis to identify potential partners or buyers that align with your goals.
   4. Market Entry Preparation and Buyer Research: Advisors assist in preparing for a merger or acquisition by conducting market research and identifying potential candidates that would be a good fit for your business.
   5. Collaboration and Teamwork: Advisors work closely with the seller, fostering open communication and trust, ensuring a cohesive team effort throughout the M&A process.
   6. Mitigating Risks and Avoiding Pitfalls: Advisors offer professional guidance in navigating legal, financial, and operational complexities, identifying potential risks, and providing solutions to overcome obstacles, ensuring a smooth and successful M&A process.

Potential Dangers of Proceeding Without an Experienced and Qualified Advisor

An experienced M&A advisor can help you secure the best possible deal, and it’s risky to attempt this process without one. 

The seven biggest risks business owners take by selling without an M&A advisor: 

 

1. 1. Making Uninformed Decisions or Accepting Unfavorable Deals: Without the right advisor, a company may lack the necessary expertise and insights to properly evaluate deals, leading to uninformed decisions and potentially accepting unfavorable terms that could have long-term negative consequences.
   2. Missed Opportunities Due to Lack of Market Expertise: Proceeding without an advisor may result in missed opportunities, as the company might lack the market expertise and connections required to identify potential buyers or strategic partners who could offer significant value.
   3. Inadequate Due Diligence: Due diligence processes may be insufficient or ineffective without a skilled advisor. Inadequate due diligence could lead to the failure to identify critical risks or uncover hidden liabilities, resulting in potential legal and financial issues after closing the deal.
   4. Inefficient Deal Negotiations: A knowledgeable advisor can help facilitate effective deal negotiations. The wrong advisor may not possess the negotiation skills needed to secure the most favorable terms for the seller, potentially leading to missed opportunities for value enhancement.
   5. Legal and Regulatory Risks: A lack of expertise in legal and regulatory matters can expose your company to significant risks during the M&A process. Failure to comply with relevant laws and regulations may lead to costly penalties and legal challenges down the road.
   6. Inadequate Post-Merger Integration: The wrong advisor may not provide adequate guidance during the post-merger integration phase. Smooth integration is crucial for realizing synergies and maximizing the value of the combined entity, and an inexperienced or ill-suited advisor may compromise the success of this essential phase.
   7. Conflicts of Interest- Reputable advisory firms like ours prioritize transparency and align our interests with yours, so you don’t have to worry about someone else’s interests taking over. You deserve a client-centered approach from advisors committed to acting in your best interests, providing unbiased advice, and maintaining confidentiality throughout the M&A process.

A successful sale of your company can change your life, but it is a complex process that can be overwhelming without the proper support. 

Partnering with an experienced M&A advisor who is 100% focused on protecting your interest saves time and money while increasing your ROI. With the right advisor by your side, you can proceed confidently, knowing that your interests are at the heart of every step we take in the sell-side M&A process.

Objective’s strategy-driven,  sell-side M&A advisory sets us apart as a trusted partner for business owners looking to navigate the M&A landscape. 

Do you have questions about this process, or are you ready to sell? Let’s talk.