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Day 143 in MIT Sloan Fellows Class 2023, M&A 12 "Company Selling Process"

M&A MBA MIT SFMBA finance

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We wrap up our journey to learn M&A process with reviewing the whole process by looking at small and middle size deals. When you sell your company to typical buyers such as strategic buyers and PE firms, you need to consider the following topics step by step. 

 

The Harvard Business School (HBS) case study titled "The Company Sale Process" provides an in-depth look into the various stages and complexities involved in selling a business. This blog post summarizes the key takeaways from the case study, offering insights and lessons for business owners and managers.

 

Step 1: Praparing for Sales

A successful sale process starts with thorough preparation. Business owners need to ensure their company is in the best possible shape before entering the market. This includes:

  1. Cleaning up financials: Ensuring accurate and up-to-date financial records are available, making it easier for potential buyers to evaluate the business. Clarify "who gets what" incentives.
  2. Assembling a team: Form a special committee of the board. Hiring professional advisors such as investment bankers, accountants, and lawyers to guide the sale process and provide expert advice. Selection criteria should be 1. Prior experience (deals completed in the seller’s business sector). 2. Access to and credibility with the senior management teams of potential buyers.3. The confidence the selling company’s directors have that the advisors will do a first-rate job.
  3. Developing a sales narrative: Creating a compelling story about the company's growth potential and unique selling points to attract potential buyers.

Step2: Marketing the Business

Once the company is prepared for sale, the next step is marketing it to potential buyers. Key marketing steps include:

  1. Creating a marketing package: A well-prepared package includes an executive summary, detailed financials, and a comprehensive company overview.
  2. Identifying potential buyers: The sales team should compile a list of potential buyers, including strategic acquirers, financial buyers, and competitors.
  3. Engaging with prospects: Initial contact with potential buyers should be made through phone calls or email to gauge interest and share the marketing package.

 

The universe of strategic buyers is generally defined by firms with all of the following:

  1. An interest in the seller’s market space,
  2. An acceptable level of antitrust risk,
  3. Enough size for the seller to be a digestible acquisition opportunity, and
  4. Adequate financial resources to complete a deal.

Step 3: Due Diligence and Negotiation

After identifying potential buyers, the due diligence and negotiation stage begins. This includes:

  1. Providing access to information: Granting potential buyers access to a secure data room with detailed company information to conduct their due diligence.
  2. Handling questions and concerns: Responding promptly and accurately to questions from potential buyers to maintain their interest and trust.
  3. Negotiating terms: Engaging in negotiations with potential buyers to agree on the purchase price, deal structure, and other key terms.

Step 4: Closing the Deal

Once the deal terms are agreed upon, the final stage is closing the deal. This involves:

  1. Signing the definitive agreement: Finalizing the deal by signing a purchase agreement outlining the agreed terms.
  2. Completing pre-closing obligations: Fulfilling any outstanding tasks or requirements before the closing date, such as obtaining regulatory approvals or completing financial audits.
  3. Closing the transaction: Finalizing the sale by transferring ownership, making payments, and completing any necessary post-closing tasks.

 

Key Takeaways and Lessons

  1. Selling a company is a complex process requiring a well-thought-out strategy and professional guidance.
  2. Preparation is critical to the success of a sale, including financial clean-up, team assembly, and sales narrative development.
  3. A targeted marketing approach helps identify potential buyers and generate interest in the company.
  4. Due diligence and negotiation are essential for reaching a fair deal and mitigating risks.
  5. Closing the deal requires careful attention to detail and completing pre-closing obligations.