How To Sell A Business – The Anatomy of Deal-Making

How to sell a business – The anatomy of deal-making

In this blog we explore the complex question of how to sell a business. In the world of mergers and acquisitions deals are often assumed to be mechanical and machine-like but, in reality, they are more like the human body. Below we delve into the essential elements of successful deals and reveal the secrets to establishing a strong foundation for selling your company.

The Foundation of a Deal – The Bones

Deals need a strong foundation to work. When selling your company, this foundation is built on the valuable information you share, or the bones of the deal.

Sharing detailed and accurate information may seem like a risk, but it’s the backbone of any transaction and incredibly important in instilling both trust and confidence in buyers. Sharing timely and intelligent information actually mitigates risks and serves not only to uphold the price but can even elevate it.

Balancing the amount and timing of commercially sensitive information you share can be tricky. However, openness not only builds trust but also showcases confidence in the potential of your business.

Due Diligence is a significant part of this process. Some think it’s like a simple home buyer report, but it’s more than that. This is where the skeleton of data gets fleshed out and is essential for a deal to happen. Buyers don’t buy businesses based on the skeletal structure alone; it’s the value you’ve built around it that truly counts. Any purchaser of your company will want to put flesh on the bones and dig deep into your company’s details. Buyers seek connected businesses, not disjointed ones.

Choosing the right advisor is crucial when navigating the complexities of selling your business. It’s not just about finding skilled negotiators or number-crunching experts. It’s about finding a team that fully understands how all the bones fit together in the intricate skeletal structure of your business. The best advisors possess the capability to support you in every aspect of the deal, from preparation to due diligence, ensuring a smooth process for everyone involved.

Negotiating the Deal – Building the Structure

A deal isn’t just about paperwork; it needs structure all the way through. Think of it like bones needing ligaments to hold them together. Due diligence (DD) is designed to uncover potential issues and inconsistencies that could challenge the deal, the terms, or the valuation. While these issues can usually be handled at this stage, it’s much better to proactively identify and address any potential issues during the preparation phase.

Concerns may not always impact the price directly, but they can have a significant influence on the deal structure and critical elements such as earn out and warranties. Ensuring issues are surfaced and, where possible, dealt with early in the process avoids the perception of risk in the buyer’s eyes and reduces the likelihood of unfavourable terms being introduced in the final negotiations.

For example, issues around succession and continuity… a younger and less experienced management team may be perceived as relying too heavily on the existing shareholders for leadership and guidance. In such cases, unless mitigated, buyers may want commitments from the current owners to stay involved for a longer period to ensure a smooth transition and stability. These negotiations are essentially about risk management, ensuring that all parties involved are confident and comfortable with the terms of the deal.

The more proactive you are in mitigating any risk for the buyer, the better deal you’ll receive for your business. The key here is to plan ahead during the ‘Preparation for Market’ phase. Due diligence shouldn’t bring any surprises; it should just confirm what we already know, and we should have solutions ready to go should any issues come up.

The People Behind Your Deal – The Heart

When it comes to your deal, the individuals involved are crucial, much like the heartbeat. While legal, tax, and financial aspects are important, it’s the people who ultimately make it happen. For shareholders, this is especially important because deals are more about people than numbers.

The people who work on your deal are the ‘heart’ of your deal.

Some say deals should be all about numbers, free from emotions. But in reality, emotions play a significant role. We’ve seen great offers turned down just because the seller didn’t like the buyer’s representative. Even if the buyer stays calm, the seller often can’t help feeling emotional.

For many shareholders, their company is like their baby. They’ve built it from nothing, so any criticism feels personal. And sometimes flattery can blind them to overlook the real deal. Trust in your advisors is crucial. They should have the right experience and skills to guide you through.

Both the lawyers you work with and the M&A advisors who pull the deal together need to come to you with proven credentials.

Dealing with many new people throughout the process can feel overwhelming. That’s why it’s important to work with experienced professionals who are skilled at managing every aspect of the process. Take a moment to evaluate the quality of the team assigned to your deal.

Here at Entrepreneurs Hub, we specialise in carefully orchestrating the entire process, ensuring smooth execution at every step. A key part of our approach is our commitment to assembling a dedicated team of 5-6 subject matter experts for each deal we undertake. This careful allocation ensures that each aspect of the transaction receives the attention it deserves, allowing us to navigate the complexities seamlessly.

During the deal process, it’s crucial that the lawyers and M&A advisors you choose not only have a strong track record, but also inspire trust. Can you depend on them when challenges arise, and will you value their advice during tough times?

You also need to consider the effectiveness of your succession plan. How well can the business operate without your direct involvement? Do you have a robust management structure in place capable of driving the business forward in your absence? If not, what steps can you take to strengthen it before entering the market?

Additionally, it’s crucial to evaluate your own team. Are they aligned with your objectives and dedicated to the success of the business? If your sales team is underperforming, it might not be the optimal moment to engage in negotiations for a deal. The individuals who ensure the smooth operation of your business are pivotal to the success of any deal.

Next steps…

When the time comes to sell your business, get the maximum value out of everything you’ve invested!

Entrepreneurs Hub are here to help steer you through this complex process, so that you can realise your aspirations, maximise value and achieve the most successful result.

Meet an experienced team who has supported the sale of over 300 businesses and get the most value out of selling your business.