Sell your Business Series – Overview of an M&A Process

March 23, 2021

Welcome to the sixth and final blog in our “Selling your business” series. In this blog, we will be giving you an overview of what a typical M&A process involves from first approaching buyers all the way through to completion.

 

Initial approach

Once your marketing materials and list of buyers are prepared, it is time to start reaching out to the buyers you have identified. The first step will be to contact the buyers on your list by email or letter. In most cases, the email or letter will be accompanied by an Executive Summary / Teaser and a Non-Disclosure Agreement (NDA), and after the NDA has been executed by the buyer, the company’s Information Memorandum is then shared.  Typically, it can take several weeks to engage most of the buyers on your list to determine if there is interest in acquiring your business. Some will respond quicker than others, and a few will need persistence.

 

Engaging with buyers

Soon after you engage with potential buyers, you will start to receive information requests and questions about your business from those interested in exploring the opportunity. While you can address these one by one, there are likely to be some recurring themes and requests. To pre-empt this, and save yourself a lot of time, it is advised you gather what information you are comfortable disclosing with potential buyers before entering into exclusivity with one party in the early stages of the process.

The information you share prior to entering exclusivity needs to sufficient to allow a buyer to assess your business and put forward an offer; anything more detailed that suiting that requirement can be saved for due diligence.

Once buyers have had the opportunity to ask a handful of questions after receiving the Information Memorandum, the next stage of the exercise will be to conduct management presentations. Management presentations are an opportunity for you to showcase your business to a handful of buyers, which can be done either face-to-face or over a videoconference call. Depending on how many interested buyers you have on the table, you may wish to restrict the number of presentations you carry out.

Next steps after this can vary depending on the process at hand. Some businesses will facilitate two or three presentations with buyers, but many will just give them the opportunity to request the additional information they need following the first meeting to submit an indicative offer. What is expected from the process is often set out in a process letter.

 

Negotiations

A process letter can accompany an Information Memorandum or follow management presentations. This will inform buyers about what you would expect to see in their initial offer letters as well as providing a deadline for offer submission. Ideally, all buyers should receive this letter at the same point in time to ensure all interested parties are moving at the same pace.

Once interested buyers have received sufficient, preliminary information about your business and are eager to proceed, parties will often reach an agreement in principle on the key terms of the transaction, known as “Heads of Terms”.

Whilst most of the document is not legally binding, Heads of Terms present you with an opportunity to flesh out as much detail as possible about the transaction, before granting exclusivity to any one buyer. If there is more than one buyer on the table at this stage, competitive tension can be generated to; 1) improve the terms of the deal, and/or 2) disclose any bad news (e.g. trading is below budget) with or limited detriment to the terms of the deal (buyers are less likely to ‘chip’ at the price if they are worried you will move forward with someone else). Although you can negotiate Heads of Terms with multiple buyers, you will typically sign the agreement with just one, granting them exclusivity for a period to get the deal done.

 

Due Diligence

After Heads of Terms are in place, and exclusivity has been granted to a single buyer, the buyer will commence due diligence. This is the process upon which a buyer will investigate your business with a fine-tooth comb to flush out any issues and substantiate the information you have provided up until that point in time. This will then allow the buyer to conclude they are happy to proceed with completing the deal, and on the same terms as agreed in principle in the Heads of Terms.

Normally, most of the due diligence will be conducted by the buyer’s professional advisers. It will involve lengthy information requests and questionnaires, which can be very arduous and stressful. It is recommended that you get as much information about your business ready in the background at the start of the process, so that you are not fumbling around when due diligence begins. The exact elements and length of a due diligence exercise will vary business to business; the process can take anywhere between days and months. Typically, the main considerations will be financial, legal, and commercial.

 

Transaction Documents

Once due diligence is underway, it will be time to start drafting completion documentation. Depending on the outcome of due diligence, some deal terms may also need re-negotiation at this stage. Completion documents are usually drafted by the legal advisers on both sides of the transaction. For this, you will want to appoint a “corporate lawyer”, with adequate experience in advising on the sale of businesses.

 

Completion

Completion will take place when transaction documents are signed, and consideration has been transferred to your solicitors. In an ideal world, you will have a contemporaneous exchange and completion (these will take place at the same time). However, in some cases, this is not possible. Where this is not possible, the deal will ‘exchange’ once the transaction documents have been signed, with formal completion occurring later, once any conditions for completion have been met.

 

We hope you have enjoyed our “Selling Your Business” blog series and found it to be informative. If you are thinking about selling your business and would like a call to discuss how Bluebox can help, please call us on 0203 924 5150, or email us at info@blueboxcfg.com.

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