Once shareholders or a board have decided to sell a business or an individual division, there is typically a considerable amount of work to do to ensure the business is sale-ready and the sale price is maximised.
Given the ongoing uncertainty around funding a transaction, investors require a greater degree of information and comfort prior to committing time and effort to progress purchase discussions.
This is why a decision to sell a business needs to be done in conjunction with a commitment to conducting an objective review to ensure that typical risks can be mitigated and the best price and conditions are achieved.
While many directors move straight to engaging an advisory firm to sell their business, at Vantage Performance we are seeing an increase in the number of companies engaging firms to assist in improving the performance of the business as well as ensuring it is sale-ready prior to commencing the sale process.
Here is a 3 phase process to get your business sale-ready and maximise the proceeds from any sale.
Phase 1: Strategic Diagnostic And Vendor Due-diligence Review
Engage an external party to conduct a strategic diagnostic review and vendor due-diligence review to better understand the business and the directors’ or shareholders’ objectives.
This review should also develop a plan to move forward and determine the most advantageous exit route.
While many companies will engage a firm to conduct vendor due diligence, the outcome and advice are typically limited to ensuring that all information and answers expected by a purchaser are prepared in a complete and concise manner.
However, this approach alone usually misses significant opportunities to improve underlying earnings and cash flow, which will lead to a better sale result.
At Vantage Performance, we usually recommend a strategic diagnostic review as part of Phase 1, as this is aimed at identifying a range of initiatives that would be implemented prior to commencing the formal sale process.
Phase 2: Performance Improvement Plan
This phase is geared towards maximising earnings and ensuring the business is sale-ready.
Depending on the outcome of Phase 1, the next stage is to develop a 100- or 300-day plan to improve the performance of the business while in parallel ensuring that all relevant financial and operational information is prepared in a manner that reduces any risk perceived by a potential purchaser.
Many directors overlook this key element. Not only do you have to ensure you have adequately highlighted the investment opportunity for any potential purchaser; it is critical that you do what you can to reduce the risk of owning the business, as this will have a significant impact on any eventual sale price.
This also helps to ensure that a purchaser can obtain any necessary funding to complete the transaction.
Phase 3: Sale Program
Once the board, together with its commercial and legal advisers, are comfortable that the business is sale-ready, the formal sale process can commence.
Above all else, you need to look at your business through the eyes of a potential purchaser who is about to put significant capital at risk by investing in your business.
Only then will you identify what areas need improving or documenting to lower the perceived risk and therefore maximise the sale price.
This post was written by Michael Fingland of Business Strategy