From the moment you begin an M&A transaction, you open yourself to risk in three areas: valuation risk, damage to the business, and completion risks. These risks are inevitable, but their severity can be managed.
An effective sale process shortens the period of vulnerability as much as possible. These strategies can mitigate all three risks, preparing your business for a sale while shortening its period of inevitable risk exposure.
Prepare for Due Diligence
No matter how many buyers you are courting, you must prepare comprehensive due diligence materials that buyers can easily review. Incomplete, internally inconsistent, and incoherent material will lead to additional information requests that can quickly overwhelm you. The information may become progressively more reactive and disorganized.
You might not be able to predict everything a buyer will want, but spend time preparing the most likely materials. Securely host it for easy dissemination. This speeds the process, and shortens your period of vulnerability.
Your team must also be able to provide rapid turnaround for additional information a buyer requests. A potential acquirer will always ask for something more, so ensure there’s a clear point of contact who can quickly access and provide this information.
When multiple buyers compete over your business, you have more leverage. Value is in the eye of the beholder, and one or two competitors may see more value than others do. A controlled and competitive process yields the best potential buyers. It also creates a sense of urgency that can convince buyers to pay more. This produces a higher sales price and a faster transaction fueled by competition.
Offer Clear Deadlines and Instructions
A timeline that maps out the entire process may scare buyers. But laying out next steps for bidders a few weeks out can prevent wasted time and poor communication. This requires you to set realistic deadlines, and to enforce them. It also means making requirements clear. Clear communication protocols are especially important. A comprehensive process letter should further outline what bids must contain to be considered.
Cull the Herd
Buyers should have to clear multiple hurdles to prove their commitment to the process. Stage the flow of information as a steady process, such that only the most committed buyers receive highly sensitive information. This process also speeds the most time-consuming components of due diligence. The sluggish and potentially problematic parties will struggle to meet deadlines, removing themselves from the process.
Trust your Advisor
You and your advisor are on the same side of the table. You are not negotiating against them, you are negotiating with the market. Be honest about your needs and expectations, unclear objectives or thresholds only clouds decision making. Select a trustworthy investment bank and then let them do their best work by being completely honest and forthright, it will enure to your benefit in the long run. Working with someone you trust, that is experienced in this process, will minimize risk and significantly increase the likelihood of an optimized outcome.