5 Essential Steps to maximise your value in an M&A

Contributed by: JT

Positioning your business as an attractive acquisition target involves strategic focus and meticulous preparation across key areas. In today’s competitive landscape, mastering the art of mergers and acquisitions (M&A) requires a systematic approach aimed at maximizing value and securing optimal deals. This article explores five essential steps that can significantly enhance your company’s appeal in M&A transactions. By delving into these critical strategies, businesses can effectively bolster their attractiveness and readiness for acquisition, paving the way for successful negotiations and favorable outcomes.

Is it time to sell?

You’ve spent the last 20 years building your business from a three-man operation to an established and dominant player in your industry. Over the years, you’ve cultivated a solid corporate culture and a reliable workforce, transforming your business into a well-oiled machine with stable profit margins.

You may have received numerous unsolicited inquiries from eager investors promising to buy your business with a substantial pile of cash. So, you started to think, “Is it time to sell my business?”

How do I go to market?

Many sellers believe that once they decide to sell their business, they can simply announce it to the world, and a suitable buyer will appear. They think that they just need to share their financial statements and wait for an offer, much like listing a property for sale. However, the process of selling your business is not the same as selling real estate.

Real estate value is tied to tangible attributes like location, tenure, physical condition, and development potential. In contrast, securing business value, especially for privately held businesses, involves more intangible factors.

Unplanned Process

An unplanned and poorly managed sale process can destroy more inherent value in a business than in a property. Conversely, a well-planned and executed sale process ensures that your business value is clearly presented and communicated to the appropriate audience, achieving your desired outcome.

Thorough preparation is essential before even beginning the sale process. It’s important to understand your position and have the necessary data as evidence before engaging with potential buyers. Remember, different buyers may have different interests. If you plan to engage with a diverse audience, you need to prepare key selling points with relevant data tailored to each target group.

Preparatory Stage

The pre-sale preparatory stage is crucial for uncovering your business’s potential and hidden gems and justifying (and defending) a higher valuation for your business. This process cannot be rushed. The military motto “slow is smooth, and smooth is fast” holds true. It reminds us that deliberate actions can avoid mistakes and ensure efficiency in high-stress situations. Indeed, selling and buying a business qualifies as a high-stress situation for both parties.

As a seller, you want to ensure that the information prospective buyers receive about your business clearly communicates its value and addresses the potential (perceived) risks they may face in buying it.

5 Essential Steps before you launch into an extensive pre-sale plan.

Before you launch into an extensive pre-sale plan, here are five simple steps you can take today:

Step 1. Start with Historical Financials.

Prepare your financials. Review your past performance and prepare forecasts for the next 3 to 5 years. If you have multiple companies under individual shareholders and wish to sell the business as a group, produce pro forma group consolidation statements to demonstrate the combined results.

Step 2. Prepare a Virtual Data Room

Organizing a data room is crucial for supporting analysis and discussions with management and potential buyers. It ensures controlled access and monitoring of data to maintain confidentiality. A virtual data room (VDR) allows you to manage permissions, controlling who can view and download information. Some VDR platforms also enable users to simulate documents online without the need to download them to their desktops to further enhance security and privacy for the seller. This will be essential during the due diligence phase and the closing stage of the sales process.

Step 3. Translate into a Buyer’s Native Language

If you’re reaching out to potential buyers who are not proficient in English, translate critical information into their native language. This will significantly increase your chances with prospective buyers. For example, if you’re targeting Japanese and Chinese buyers, translate your information into Japanese and Chinese.

Step 4. Address Information & Data Gaps

Information and data gaps during a business sale can cause buyers to have incomplete knowledge and understanding of your business, increasing the perceived risk of investment and casts doubts in buyers’ decision making. Identify any missing information or data needed to support your business’s unique selling points and make it available for the buyer.

Step 5. Set a Timeline

Finally, set a timeline to kick-start the sale process. While the preparation time may differ for each business, it’s a good discipline to follow a timeline. This signals to serious buyers that you are ready to negotiate. The preparatory steps typically take about two to three months, but if pro forma group financials require more time, it may take at least six months before the sale process can begin.

Final Thoughts

Don’t expect buyers to recognise the value of your business based solely on financial statements or raw data. Be intentional in preparing clear, accurate, and strategic transactional data to support your business value.

Financial records and accounting reports tell the story of how a company is doing financially, which is why accounting is often referred to as the language of business. Delve into your historical financials and business data to provide insights on your business value and help you create a strategy to engage with buyers.

These five simple steps will help you get started in the M&A sale process. Stay tuned for more insights on the M&A process.

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