The chance to sell your firm may present itself in a variety of ways. A important client or business partner may approach you. A resource may be discovered by a key management or employee. A business broker (or investment banker) may contact you on behalf of a party interested in acquiring a firm in your sector in certain instances. In certain circumstances, you may actively advertise your company on an internet business selling platform and expect to get leads.
The sales process may be time-consuming and difficult. Allow yourself at least 6 months to concentrate on your financials so that they are ready when a prospective buyer expresses interest. In fact, you should begin the process 12-18 months in advance to ensure you have at least one strong set of annual financials to show prospective purchasers. For most deals, purchasers may want 3-5 years of financials.
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Here are some pointers to help you prepare for the next negotiations:
1. Group
Hiring the correct broker or investment banker to complete the transaction can relieve you of a lot of worry and may result in a higher price. You will also need to engage accountants and attorneys to help you close the deal.
I would recommend speaking with many brokers before deciding on one. It is tough to locate a reputable broker who will look out for your interests and get you the best offer at lower price points. You could also inquire with others who have previously sold firms to determine whether they utilised somebody reputable.
2. Asset Sale vs. Stock Sale
In general, there are three ways to sell a company: asset sale, stock sale, or direct or indirect merger. Sellers often prefer a stock sale since there are no remaining liabilities (except any post-closing obligations to the buyers).
3. Agreement on Confidentiality
Before revealing any sensitive information with possible purchasers who may be rivals, sellers should establish if the buyer has a genuine interest in acquiring the firm or is merely fishing for information to obtain a competitive edge.
4.Letter of Intent
The seller should make certain that the buyer agrees to a set price (if feasible) and has few “puts” to back out of the contract. Before exposing your books to a possible buyer, it is a good practise to sign a letter of intent, heads of terms, or a term sheet.
Sellers should need a deposit and maybe a break-up fee if the buyer chooses not to continue with the transaction.
5. Exercise Due Diligence
When replying to a buyer’s request for information, simply reveal what is required.
Buyers may be interested in reviewing your company’s financial and legal paperwork. Corporate papers, commercial agreements, real estate (if any, including leases), employment agreements, intellectual property (for technological businesses), customer lists, and any regulatory or licencing approvals, if relevant, are some of the important areas of concern.
In bigger deals, buyers may want you to set up a data room so that purchasers and their advisers can easily access and evaluate your company’s papers.
6.Transactional Documents
The transaction will either be structured as an asset purchase and stock purchase agreement or as an asset purchase and stock purchase agreement. Additional assignment agreements may be required for asset purchases.
In both circumstances, the buyer will hold you liable if anything goes wrong after the sale. Buyers may demand on a time-based earn-out or a post-closing escrow for anything discovered during due diligence.