Sell-Side M&A Strategy

Sell-Side M&A Strategy: 5 Tactics to Maximize Value

Most, if not all, owners of privately held businesses will consider selling their company at some time. And they should. Selling a company takes risk off the table. It enables owners to cash in on years of hard work and move on to what’s next. It may also mean an entirely new trajectory for the business and long-term security for its employees. Ready to sell your business? Read on to learn about sell-side M&A strategy: 5 tactics to maximize value.

There’s something important I must point out. Both you and your company have to be equally ready to make an acquisition even viable. I’ve worked with owners that had perfectly reasonable motivation to sell, but the company needed a ton of work. Conversely I’ve helped owners assess multiple competitive offers on solid businesses, but they weren’t personally ready to sell.

In either case, opportunity was lost. The moral of the story? Let’s start with a look at the business valuation spectrum.

Related: What to Expect from your M&A Advisor

Be acquired, don’t be for sale

The sale of your business will come down to one thing: valuation. You have an idea what you want from the sale, but there is no such thing as an asking price in the M&A world. Buyers approach valuation on their own. Getting both sides to agree on the transaction value of your company is the hard part. So how can you ensure you are maximizing value in your sell-side mergers & acquisitions process?

A well designed and executed sell-side M&A strategy will enable the process of being acquired, not the process of being “for sale”. Successful M&A transactions depend mostly on business valuation. Sure, other variables influence the viability of an acquisition for a buyer. However, the potential for positive future growth and return on investment (ROI) are the objective. Naturally, you are wondering what is my business worth? Value is largely a function of a buyer’s perspective on your company’s future potential for:

  1. Sustainable revenue growth
  2. Quality of earnings

From a thorough historical financial and KPI analysis, buyers will look at other aspects of your company including organization chart, brand value, product/market fit, culture and other factors that will indicate opportunities for future growth. Depending on the level of alignment you have achieved and maintain in day-to-day operations, buyers can assess the transferability of value to them. Learn how to reach your full potential with an alignment model.

Ready to Sell?

Could now be the time to sell your business? Public markets are at all time highs, private equity capital raising continues at robust levels, and M&A activity is…down? How do these and other market factors affect the opportunity to sell a privately held business to another business or to a private equity group? What makes a strong acquisition target?

You probably already have a view on the value of your business. Will buyers have the same view on your business valuation? Not likely. So what can you do about it? Discover what makes a strong acquisition target.

You can also flip through the following presentation to learn more about tailoring a sell-side M&A strategy to maximize your business valuation in a sale.

 

Make Your Acquisition A Cause

 

Before you start the sell-side M&A process there are a number of things to prepare for. Establishing the seller’s objectives is the first step. Second, prepare a relevant list of M&A sale consideration topics for sellers. Third, learn how to establish value in the M&A sale process.

The better run your M&A sell-side process is the higher the likelihood you will achieve the highest market value from the best buyer for your business. Every corner that is cut in the process will elevate the risk of getting a deal done at all – let alone a premium valuation. This why your sell-side M&A strategy: 5 tactics to maximize value is so important.

How has running a thorough, tight and professional process helped other sellers? This is the helpful information we provide for business owners considering selling their respective businesses.

What does your sell-side M&A strategy involve?

Who. Who is the best buyer for my business?

What. What steps need to be taken to get a deal done with the best buyer for my business?

Why. Why do shortcuts add risks to getting a deal done?

Where. Where do I find the best buyer for my business? Scale vs. Scope

When. When will a deal get done if I start talking to buyers today? Can I time the market?

Sell-Side M&A Process

What are the components critical to running an optimal sell-side M&A process that maximizes value in minimum time with no disruption to the seller’s business?

  1. Confidential Information Memorandum (CIM)
  2. Teaser
  3. Buyer List
  4. Process Letter
  5. Confidentiality Agreement

Related: The Purpose of a Confidential Information Memorandum

Every sell-side mergers and acquisitions process must lead with a written Confidential Information Memorandum (CIM). Want to negotiate an outright sale with strategic or financial buyers? Want to attract investors for a partial sale? If you want to sell all or part of your business, you must run a professional sell-side M&A process. An effectively written CIM is vital for a successful sale process. Why?

To establish common ground

Because using a relevant and effective CIM, or “book” is the only way to tell prospective buyers how to view your company and its amazing growth opportunities. How do you write a CIM? Moreover think: who should write your CIM?

There is no such thing as an asking price in the M&A world, so how do you establish value in the sale process? What is the optimal M&A strategy to maximize value? Learn how to leverage just 5 tactics to maximize value.

1. Understand Valuation

Business valuation is more art than science. Your business has a different value to each different prospective buyer, and it’s up to them. Even this fluctuates with time, as market factors ebb and flow. Valuation may start with financial statement analysis, but the ability for a  buyer to transfer the intangible assets, to capture the synergies that create the value you are both after becomes the challenge. This means that valuation is all about the future. The perception a buyer has about their ability to create value from your tangible and intangible assets through synergies becomes the focus of valuation.

Remember, accounting is about the past. Finance is about the future.

Because buyers will determine the value of your business to them you need to have them see things your way. How are you going to get buyers to see valuation your way?

Related: Buy-Side M&A Strategy: Financing an Acquisition

Focus on the future. How do you get buyers to focus on the future? Financial projections are the only way. The challenge? Getting credit for your financial projections. Why is this so difficult?

There is only one true statement regarding financial projections: “They’re wrong. It’s a matter of in which direction and by how much.” Knowing this ups the stakes a bit, doesn’t it.

Business valuation is a huge topic with a ton of details that are better suited for another time. Let me just say that by understanding valuation you can better prepare your prospective buyers to focus on the future and the value drivers you believe in.

2. Assess Your Company

Either there’s a problem you have but don’t want, or a result you want but don’t have. Your path to success?

The fundamental driver behind strategic growth is the build versus buy concept. When a company determines they need to be in a specific business, product category or market segment they will determine their options. Build it or buy it. If the determination is that building it will take too long or cost too much, they will assess acquiring a business that achieves their goal. Therefor, you could be an acquisition target.

How will you know you meet more of their criteria than your competitors?

Start by assessing your own company objectively to ascertain how well positioned you are for future success. What are you looking for?

  1. Product/Market fit
  2. Finance/Market fit
  3. Organization/Market fit

One way to perform this assessment is with an Alignment Map. Insanity has been described as the impulse to keep doing the same thing over and over again in the hope of getting a different result. Innovation, in contrast, is applying a miniscule, ingenious twist to the exact same thing in order to achieve a better outcome. The true definition of creativity is knowing how to inject just the right amount of madness into a process so that you attain your goal.

Related: How to Reach Your Full Potential with an Alignment Map

Buyers are going to verify every expectation they have about your company in a process called due diligence. Every fact they are verifying will have a direct impact on valuation. And remember, the sale of your business will come down to one thing: valuation. So make sure there are non deal breakers hidden away somewhere by accurately assessing your company in advance of starting a sell-side M&A process.

3. Know the Market

Accurate perspective of the market will give you a significant competitive advantage in a number of respects. First, by knowing your industry (i.e. product/market fit) you can better position your company for strong, sustainable revenue growth. Check the value box here. Next, by knowing long game advances in technologies that may not yet, but will impact your entire industry, you can position your business defensively to protect quality of earnings. A second check in the value box. Lastly, by knowing the M&A market for your industry you will have a good sense of who the buyers are, what they are buying and how much they are paying. Bang, a third check in the value box!

Knowing the M&A market comes back to understanding valuation, so you can see how these 5 tactics to maximize value are connected.

4. Write an Amazing Confidential Information Memorandum

I can’t emphasize this one enough. Seriously. If you have a poorly written Confidential Information Memo, nothing else matters. Nothing can help you maximize value. Why?

Your CIM is the recipe for valuation. Remember I mentioned there is no “asking price” in the M&A world? There isn’t, but your CIM is the next best thing. It’s the only way to convey your value proposition, your readiness for future growth and why buyers will not want to compete with you, but rather own you to better themselves. The CIM is the most importation document to establish the facts, your competitive advantages and the future opportunities you are positioned to benefit from. It’s your chance to tell your story.

The more compelling your story, the more compelling your valuation will be. If you get credit for it. So tell it well.

At the very least you will have to cover the following topics:

  • Executive summary — a snapshot of your business
  • Company description — describes what you do and for whom you do it
  • Market analysis – research on your industry, market and competitors
  • Organization and management — your business and management structure
  • Service or product — the products or services you’re offering
  • Marketing and sales — how you market your business and your sales strategy
  • Historical financial statements — your past 3 years and trailing twelve months of financials
  • MD&A — Management Discussion & Analysis
  • Financial projections — what you believe the next 3 to 5 years will look like (and an OKR cascade is great here)
  • Appendix — an optional section that includes key personnel resumes, intellectual property, permits, etc.

5. Run a Tight M&A Process

Remember what I said at the beginning: Be acquired, don’t be for sale. The reality of the M&A marketplace is that you really only get one chance to run the drill to maximize value. This means it is critical to do it right the first time. There’s one best buyer for your business and if you turn down their offer you won’t likely have another opportunity with them. They already spent their own time and money reading your CIM, following your process letter, meeting on your schedule and preparing a valuation that likely came, at least in part, from your Confidential Information Memorandum.

Running a tight process means keeping the prospective buyer pool together at every step of the sell-side M&A process:

  1. Marketing
  2. Indications of Interest
  3. Letters of Intent
  4. Due Diligence
  5. Exclusivity
  6. Closing & Funding

Your sell-side M&A strategy: 5 tactics to maximize value will have a significant impact on the outcome.

We engage in asset based transactions, not securities transactions in compliance with the SEC’s M&A Broker rules.

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