Selling Your Business in the Open Market

Smythe’s team of M&A experts have the proven ability to help clients navigate the complex process of selling a business. Our mission is to help clients achieve the highest price and negotiate the optimal terms and conditions, while ensuring their non-financial objectives are met.

Our structured process for maximizing value includes preparing robust financial models and effective marketing materials, creating competitive tension amongst a pool of qualified buyers, and then leveraging this tension to negotiate the highest price and optimal terms for our clients.

Ultimately, our clients make all the decisions but leverage our financial expertise, deal experience and market knowledge every step of the way.

Selling your business

This article discusses what’s involved in executing a sale of your business in the open market, however refer to this blog post if you’re considering a direct sale or intergenerational plan. If you’re one of several of our clients that are developing or have developed their business succession plan, you will have started preparing for a sale of your business. If not, refer to this blog post that discusses how to best prepare for a business sale.

Running a structured process when selling your business in the open market often results in the highest chance of success and the highest valuation at the best terms. The goal in any divestiture process is to ensure there is a pre-defined timeline in order to create an “auction” environment, where potential purchasers understand they are competing for your business. This tension provides a seller with leverage from which to negotiate.

To maximize the chances of success, you want to ensure that you’re well prepared for the process and are working with a proven team of advisors to help you navigate the complexity of selling a business and negotiating the best terms.

Executing the process involves four phases:

  • Preparation phase –
    • Understand what is considered a reasonable valuation for your business. If the valuation guidance provided doesn’t meet your expectations and there is no urgency to sell your business, it’s okay to delay the rest of the process until you enhance your business’ value.Prepare detailed robust financial models that provide potential purchasers with a lens of the historical and forward-looking profitability and return on investing in your business.Produce a confidential information memorandum, which is a marketing document that effectively communicates the strengths and opportunities of your business. This is the primary document that investors will rely on when crafting their offers.Prepare a dataroom – an effective process requires that the qualified pool of purchasers have access to the appropriate information in a timely manner. Momentum is a big component of deriving value from an effective process.
    • Qualify potential buyers – determine which parties you’d like to approach as potential purchasers for your business.
  • Marketing (phase one) – after preparing your marketing documents and your list of qualified buyers, you are ready to start marketing your business.
    • This involves sending out an anonymous business profile or teaser to the qualified list of buyers. The teaser will contain high level information on your business that will provide sufficient information to potential purchasers to determine whether they are interested in pursuing the opportunity. If they are, they would execute a non-disclosure agreement.The next step includes providing the confidential information memorandum  and holding Q&A sessions with interested parties.The marketing phase includes interested parties submitting their initial offers for consideration.
    • Our process typically results in 4-6 very competitive offers – these are the parties that at our clients’ discretion, are shortlisted and advance to the next stage of the marketing phase.
  • Marketing (phase two) – this is the phase in which the competitive tension is at its highest as the shortlisted buyers are close to the finish line.
    • The shortlisted parties will have access to a dataroom containing documentation supporting the assertions in the confidential information memorandum.A dataroom is a critical tool that provides complete control over access to your confidential information. It allows you to determine which parties have invested time in reviewing the materials and completed sufficient due diligence, which means there’s a lower chance they will change their offer once you decide to go exclusive.Shortlisted parties will have the opportunity to meet with management. These meetings can serve two purposes. For the purchaser, it allows them to assess fit and ask high-level business strategy questions to supplement their due diligence. For the seller, it allows you to learn more about the purchaser’s vision for your business to assess which party will be the best fit to carry on your legacy.The parties will submit a detailed letter of intent that specifies exact details for the transaction. We will negotiate with your selected party or parties to achieve the maximum price and best terms.
    • This stage ends with the signing of a non-binding letter of intent with a single party.
  • Closing phase – in this stage, your M&A legal counsel will play a primary role in drafting and negotiating the definitive legal agreements, which outline in detail the terms of the letter of intent, and legal terms such as reps & warranties, indemnities and other terms and conditions.
    • Our primary role in this stage is to deal directly with the purchaser for any business issues that the respective legal teams can’t resolve directly.
    • Concurrently, we are ensuring that the purchaser has all the necessary documentation required to complete their due diligence, including updated forecasts and financial information.

While the sale process is in progress, it is critical to ensure the business continues to perform as expected. As M&A advisors, our role is to be the main point of contact throughout the entire process. This minimizes the distractions caused by the sale process and allows you to focus on continuing to run the business.

Selling a business at the highest price and best terms is a complex process requiring financial expertise, deal experience and market knowledge. If you’re considering your business succession plan, reach out to one of our M&A advisors noted below.