Preparing for a sale process
The key to moving forward efficiently to completion of a sale is having your house in order before you begin.
Here are some key issues to get ahead of:
Your management team and professional advisors
The quality of the management team is crucial, and the buyer will, to a great extent, see the transaction as an investment in the team staying on, so you will need to choose your team carefully from the start. You will need to ensure that, in addition to all-round strength, the individual members of the team have the different capabilities and attributes required in the key business areas and that each justifies their inclusion on merit.
Getting the right management team on board is crucial, but so is making sure they are rewarded, motivated and retained. Their remuneration and incentive structure, whether options, equity, bonuses, etc., should be carefully considered. Equally important is making sure the business is protected with appropriate service contracts for key management, including provisions to prevent management competing if they leave the business.
Choosing the right professional advisors (including accountants, corporate finance advisors, W&I brokers, etc.) is also key to the success of a transaction. Management might need their own advisors. We can help you in getting the right advisors in place.
Protecting the business
During the sales process, the buyer will want to learn as much as possible about you, your team, the company, it is products, and your business plan (and perhaps the wider market). As part of this "due diligence", a buyer will require those "in the know", usually the management team, to disclose information so that they can make an informed assessment of the value and potential of the company.
Legal due diligence will form only a part of this exercise. The financial and tax due diligence will also be key and (depending on the nature of your business) commercial, IP, insurance, technology and ESG due diligence exercises will typically be undertaken at the same time. Problems, or even potential problems, could lead to a reduction in the value of your business or even the transaction going off the rails completely.
The disclosure process can be a difficult, stressful, and time-consuming exercise, but you can avoid a lot of headaches if you and your team are prepared for it and problems are dealt with in advance. One of the best ways to prepare is for your own lawyers to undertake due diligence before the buyer (a process called "vendor due diligence") so that issues can be identified and ironed out where possible and otherwise presented in the most favourable light to the buyer. Even if the sale does not proceed, this can be helpful to the business going forward.
At the same time, you also need to give sufficient time to running the business. It is important that performance continues to be in line with expectations during the sales process to ensure you receive the best possible valuation. Having the right advisors on board, who can help take things relating to the sale preparations off your plate, is important to ensure you can balance your time appropriately.
Areas to focus on to smooth the process of the transaction include:
Key contracts
Reviewing and appraising the contractual basis of strategically important financial commitments, supplier arrangements, and revenue-generating relationships (e.g., property and equipment leases and customer contracts) in order to understand the degree of flexibility available to change strategy or manage costs, the reliability of revenue streams, and the effect the transaction may have.
Intellectual property (IP), know-how, trade secrets, and brands
Putting in place measures to manage and protect these IP assets from infringement or onward disclosure is essential. Buyers will want certainty that the company either owns or has the right to use any IP relevant to the business.
Disputes
Whilst you might not be able to avoid or resolve a dispute, it is important to conduct a proper assessment of relevant risks and to maintain clear records of decision-making processes.
Options
Actual and potential disputes and investigations (whether litigation, arbitration, or regulatory investigation/intervention) should be monitored, assessed, and managed to minimise their impact on the value of the business.
Horizon scanning
As well as identifying issues in the business. It is also important to identify any potential hurdles or blockers to closing a deal, for example from shareholders, lenders, and regulators, at an early stage to avoid losing momentum or running into issues at a late stage that can be difficult to resolve. A few key areas to give some thought to include: