Growing a successful business can often be a lifetime’s work. But what happens when you’ve realised your growth ambitions?
As part our Exploring Exits series, we are delving into the options available to business leaders wanting to plot out the best exit route for them, taking in companies of every size and sector.
In this article, Emma Thomas focuses on the key points you need to consider when preparing your business for sale.
Selling your business will often be a tiresome and costly process. However, implementing good planning and preparation can assist you to retain control, and ensure that the transaction runs smoothly, with minimum disruption to your company's business.
There are several planning measures that you should consider early in the sale process.
Organising the deal team
Management team. Members of your senior management team will usually play an important role in all aspects of the sale process, including:
- engaging external advisers;
- marketing the target company;
- dealing with due diligence; and
- negotiating the transaction documents
In addition to the internal management team, you will also appoint external advisers:
- Legal advisers. You will usually instruct a lead corporate lawyer to carry out and co-ordinate the legal workstreams involved in documenting the transaction and transferring legal ownership of the target shares from seller to buyer.
- Accountants. You will often engage a firm of accountants to assist with a range of matters.
- Financial adviser. In some transactions, you may appoint an investment bank or other corporate finance adviser to source prospective buyers for the target company and to assist in managing the sale process.
Determining the appropriate method of sale
The two main routes to sale are:
- Negotiating a transaction with a single interested buyer
- Holding an auction through which you seek bids for the target company from a range of prospective buyers in a competitive tender process.
As the process and steps involved in the transaction will differ in some key respects depending on whether you intend to negotiate a deal with a single potential buyer, or whether it will be running an auction, you will need to make an early decision regarding the type of sale process it wants to run.
Ensuring the information that the buyer is likely to require as part of its due diligence exercise is readily available and up-to-date
Before actively engaging with prospective buyers, you may want to consider undertaking an internal sell-side due diligence investigation, which essentially involves reviewing the target company, its business and operations from the perspective of a potential buyer.
The key benefits of carrying out a pre-sale internal due diligence review include:
- Identifying and addressing potential issues or areas requiring improvement- this typically involves reviewing the T&Cs you have in place, your compliance with any regulatory body etc.
- Identifying any consents or approvals required for the sale.
- Assisting in the preparation of any information memorandum or other sale materials that will be provided to potential buyers.
- Laying the groundwork for buyer due diligence.
- Assisting preparation of the disclosure letter.
Buyers commonly request certain documents and information that you should have on hand and have formulated responses for, such as:
- Details of the target company’s corporate structure.
- The target’s company’s financial reports and accounts.
- Details of the target company’s financing arrangements.
- Details of the target company’s employee arrangements.
- Details of the target company’s material contracts.
- Summaries of the target company’s IT arrangements and any key IT service contracts.
- Details of the target company’s key assets, including intellectual property rights.
- Details of the target company’s real estate interests, including any leases.
- Information on any licences or regulatory permissions required for the target company’s business.
- The target company’s compliance policies, including those on anti-bribery and corruption and data privacy.
- Details of any pending, threatened or ongoing litigation.
These items should be gathered and reviewed as part of the seller due diligence so they are easily located and, where applicable, included in the transaction data room.
Emma is a Solicitor in Brabners’ corporate team. She handles issues such as mergers and acquisitions, investment fundraising, company reorganisations and family investment companies.
She acts for a range of clients including SMEs, start-ups and large nationals as well as a number of clients in the technology and sport sectors.
If you would like to discuss preparing your business for sale please contact Emma, she would be more than happy to help.
In the next article in this series, corporate Partner Simon Lewis will look at deal structures and valuation.
