Selling your business doesn't always mean selling 100% of it: you may be valuing your entire company but only giving up a stake to drive your growth. Parting with part of your business is a special moment. You need to find the partner that best fits the vision and mission you've built, the one who can best help you carry out your future plans. That's why it's crucial to always keep the following five keys in mind:
- Define the scope of the transaction and prepare all the necessary materials
Before considering a corporate transaction, we need to be clear about what we're looking for. Do we want to bring in a minority partner by selling less than 30% of the company? Do we want to sell a majority stake? Or do we simply want to ensure the company's continuity because there's no one to lead the next phase?
It's important to have your information as organized as possible, since the first thing any investor and/or advisor will ask for is a set of documents needed to prepare the initial materials (teaser, process letter, information memorandum, etc.).
- Prepare the information and test the market
There are three main blocks of information we'll need to have ready, ideally covering the last 3 years:
- General: Information on the management team and key personnel, a functional organization chart by department (number of employees per area, average tenure, and cost), and details on outsourced services.
- Operational: Details of the assets (location, square meters, rent, etc.), the evolution and current status of inventory, details of the main customers and their share of sales, and information on any lawsuits or claims
- Financial: Annual accounts, a breakdown of operating investment, detailed information on the main operating costs, normalized EBITDA, revenue information for the current year and budget, and details on average collection/payment periods.
With this information organized, we can carry out an initial market test with investors, sharing the information we consider necessary for a first approach.
- Populate the data room and prepare for investors' likely questions
Because the information is already organized, we can arrange it in a virtual data room, a software tool used in any transaction to share sensitive information with interested parties in a secure environment. These digital tools allow very granular control over access to documents, showing who views or downloads certain files and making it possible to gauge interest in the deal.
Once investors have access to more information about the company, questions are expected to arise to clarify certain aspects of the business. That's why Q&A windows are opened throughout the deal, where these questions are raised so the management team can answer them.
- Negotiate your company's key terms
Does your company's value matter? Yes, of course. But be careful: it's not the only thing investors will negotiate. You need to set favorable conditions for the company's continuity, and you can negotiate aspects such as protections for certain executives, the business plan to follow once the investment is finalized, and who will sit on the board of directors.
In any case, the negotiation lasts as long as it takes for the transaction to materialize, and it's part of the process of getting to know the partner, on both sides. Having the most important aspects tied down from the outset will be key to a successful closing.
- Offer different options for the financial closing of the deal
Being flexible about how the partner pays to come into your business is important, since there are many payment structures beyond paying the full amount in cash. You can propose an upfront payment and a payment conditional on achieving certain targets, known in the industry as an earn-out. You can also propose a share swap between one company and the other, which may be combined with a cash payment.
It's important that the payment options don't become a “dealbreaker” and that you both manage to reach an agreement at closing.
What about you… are you ready to sell your SME? At Deale we help you get in touch with professional investors looking for companies like yours.
