Business owners usually ask themselves this question at some point in their lives: How to sell my company?
The majority don’t know the process and or the best way to do it, here we share some important ideas.
Selling a company can be one of the most complex processes in life. Each company has its own characteristics that can make it attractive for only certain types of investors. There are many variables that can make a company strategic or not for a buyer such as: size, product portfolio, competitive strategy, location or financial condition (eg profitable or in difficulty, etc.). It is also difficult to put buyers and sellers in agreement with the conditions of the transaction (price, share ownership percentage to be transferred, decision making, form of payment, future administration) or due diligence problems may arise, such as contingencies.
The most important thing is to have adequate advice, in emerging countries, business brokers are usually responsible for selling businesses whose value goes up to 3 million dollars. The investment banks, instituted by investment bankers are in charge of selling companies whose value is greater than 3 million dollars.
To carry out the sale of your company you must first hire the right type of adviser and give them an exclusive sales mandate; It is not as simple as selling a real estate property where the asset can be consigned with multiple real estate agents and pay a commission only in case of success. The advisors in this case for a company sale will charge you fixed fees for carrying out the entire process of the company’s valuation. The reason for this is to determine a possible sale value, prepare all the documentation to present the company to potential investors and administer the mandate that can take several months and even years to execute.
After the hiring of the advisors they will be in charge of carrying out an exhaustive study of who are the suitable buyers for your company. Among these are usually your suppliers who are interested in integrating forwards, your clients, some of which are interested in integrating backwards and your competitors, who want to have a greater market share and greater bargaining power. Companies in foreign countries that have a similar business operation to you will look to enter the market to realise synergies, dilute fixed expenses and gain market share and profitability. In addition, private equity funds look to acquire companies domestically and internationally for the above mentioned reasons.
Once the potential buyers have been defined, the advisor will be in charge of contacting them one by one, and will send them preliminary information, generally without disclosing the name of their company until they have signed a confidentiality agreement. Once signed they will send the ‘booklet of sale’ or ‘information memorandum’. The latter is an extensive document which presents the most relevant aspects of your company, its history, product portfolio, competitors, sector analysis, competitive advantages, financial information and projections.
Once potential buyers have analyzed the information provided some will want to personally know the company and its operations to present an acquisition offer.
Once acceptable offers have been received the due diligence process begins. Making an expert opinion to the company consists of accounting, financial, tax, operational, regulatory and reputational aspects. The objective of this process for the buyer is to verify that the information provided by the seller and their advisors is true and that the purchase price offered is well defined based on the information received. The process continues with the mitigation of risks and future contingencies followed by the closing process.
Adjustments are frequently made to the purchase prices offered based on the results of due diligence, and then if both parties agree the transaction is closed.
All of this process normally lasts between 6 and 18 months, and the costs for this type of accompaniment range between 1.5% and 10% + VAT of the transaction value, depending on the size of the company.
Additionally, it will be necessary to hire tax and legal advisors to accompany the closing process.
Do not try to sell your company alone without the proper advice to try save on fees. Cheap is expensive, good advisors will pay for themselves by finding the best buyers and negotiating a good deal for you.
If you are thinking of selling not at this time but in a few some years, it is advisable to hire investment bankers to help prepare your company to sell it in a shorter time but in better condition. Executing strategies that take time but will increase the value of your company.
Author: Simón Restrepo Barth