Sell-side advisor tips on selling your business
Selling a business is often a once-in-a-lifetime milestone, carrying significant financial and personal consequences. As sell-side specialists, at Initium Corporate Finance we believe that if you are only going to sell your business once, you should aim for the very best possible outcome. But what are the practical steps you can take to achieving this?
At a recent live webinar hosted by Mark Bentley, Initium Managing Director Andy Denny, Associate Director Simon Glover, and Assistant Manager Kathryn Baldwin shared their top tips on how to get the best outcome when selling your business.
Here, we summarise their key takeaways.
Preparing your business for sale
Simon Glover outlines the two key areas that they focus on when preparing a business for sale:
- Strategic positioning
How the business is presented to the market is critical. This includes the language used to describe the company and the selection of KPIs shared with potential acquirers. Shaping the narrative and highlighting the metrics that will resonate most strongly with buyers, ensures the business is positioned in the most compelling way possible. - Removing value risks
It is equally important to identify and address any issues that could slow down a transaction or create a drag on the valuation.
Explaining the ‘drag on value’ risk, Simon gave the example of a business where 40% of their revenue came from a single customer – whose contract expires in six months. In such a case, the recommendation would be to secure a contract renewal before going to market, protecting both deal certainty and valuation.
He recalls another situation, where a company had a 10% shareholder who had not been contacted in six years. For Initium, this represented a serious red flag and would have rendered the business unsaleable. It was therefore important for the shareholder to be contacted and brought into the process before taking the business to market.
Commit your time to due diligence
Kathryn Baldwin emphasises that many business owners underestimate the time commitment required during the preparation phase of a sale. The process can feel like taking on a second full-time role, all while maintaining the demands of continuing to run the business day to day.
“Thorough preparation is particularly important when it comes to due diligence. It’s important to prepare every document a buyer could reasonably request before going to market. This proactive approach strengthens your position in discussions and negotiations, while also helping to keep momentum during the transaction.”
Ultimately, investing time upfront to create a strong data room saves significant time, and reduces friction once the sale process is live.
What is a data room?
A data room is a virtual log of documents, something which Initium prepares for every company ahead of the due diligence phase. It includes:
- A financial section
- A legal section
- A commercial section
Your advisor and lawyer would put a request to you asking for the documents that are important to include here. These are often standard requests for information that the buyer will need to know.
Once the data room is prepared, it will be made available to potential buyers – avoiding further requests for information.
Driving buyer competition
Why is it so important to have more than one buyer interested in your business? And why shouldn’t you sell to the first buyer that taps you on the shoulder?
Andy Denny says that when it comes to the buyers, ‘strategic motive will drive value.”
Acquirers from different geographies or complementary markets will each have their own strategic rationale for making an acquisition. As a result, they will assess the same business differently – and attribute different values to it.
By generating a competitive process, where multiple buyers with varied motivations are bidding, you will increase the likelihood of achieving the highest possible valuation.
Buyer competition also creates an opportunity for us to start the negotiation process with those who have made an offer. And sometimes more importantly, it gives the seller a choice of who they sell to.
Allowing you to choose your buyer
For many business owners, it’s not just about the sale price, it’s about continuing the legacy of the business. Knowing that you’re handing the business over to a ‘good home’ can be a priority to an owner and will sometimes mean they don’t take the highest bid but choose the best fit for their team and for their future.
Being able to interview potential buyers will allow you, the seller, to decide who has the best cultural fit and long-term objectives for the business.
Plus, should your first choice of buyer pull out of the process (your Plan A), assuming a competitive bidding process has been run, you’ve got the option to switch to plan B or even C.
Where we have built a competitive market, we’ve been able to dictate more of the terms and the timeline and also drive a higher price and faster sale for our clients.
Specialist sell-side advisors will help you to level up
Selling a business is both complex and emotional. Buyers often have more experience of the process than sellers, so they can have an unfair advantage. As Andy Denny explains, sell-side specialist advisors can help sellers to ‘level up’ by:
- “Understanding the landscape and the process, to help you position yourself in the best possible light for a potential sale”
- “Removing the emotion from the process, supporting you to navigate some of the more difficult questions and present any weaknesses in a more positive light”
- “Smoothing the process and ensure everything is delivered in a timely fashion”
- “Ensuring that the seller gets the best outcome – from the right choice of buyer, to the right terms”
Advisors also take on a lot of the time-consuming preparation work, allowing business owners to focus on running the business while the transaction progresses.
A good corporate lawyer will also add significant value
Andy Denny shares, “You’ll need a corporate lawyer. An inexperienced lawyer – one that doesn’t regularly deal with buy-side lawyers, and don’t have a good understanding of the terms that need to be agreed as part of the transaction – can create delays in the process. Contracts that can be over 100 pages long need to be well understood by your legal team. Someone without the relevant experience won’t be able to navigate through the contract as quickly or thoroughly.
FAQs
Are businesses not just valued based on multiples?
In our experience, based on the same seller information, buyers will come in with a wide range of business valuations and offers. In recent transactions, we received offers between 4x and 12x EBITDA.
How do we look for buyers at Initium?
Our research team is tracking deals that are happening in the market, which can help feed into our buyer list. We have regular dialogue with acquirers to keep up to date with what they’re looking for in terms of acquisition targets. For us, desk research and telephone interaction are still key activities in M&A work.
How do we approach potential buyers?
First, we only approach companies that our clients are happy to sell to. Over the years we have built a large list of potential buyers which we shortlist and review with our clients to ensure that there are no commercial sensitivities there. We engage on a personal level with senior-level individuals within selected targets who we know have the power to make the decisions at this level. All conversations are on an anonymous basis while we assess the levels of interest. NDAs are put in place before we start to share any more details.
What happens when we’re down to the final bidder?
The Heads of Terms document includes in-depth detail on the terms of the sale. The buyer then typically has 60 days of exclusivity to complete the transaction.
Conclusion
Achieving the best outcome when selling your business requires careful preparation, a clear understanding of the process, the ability to attract multiple competitive bidders, and strong negotiation skills – all of which help secure a sale on your terms.
Working with an experienced sell-side advisor and legal specialist can make the process smoother, less stressful, and quicker, allowing you to move forward and enjoy life after the sale – whatever that looks like for you.
If you’d like to discuss selling your business, contact Initium for some confidential advice.