July 24, 2023 by Jacques de Muelenaere
Thinking of selling your business? Summer is a great time to start preparing you and your business. Here we explain why.
A. Preparation Time
As the Headline suggests: Now is a good time to START selling your business. For a lot of business owners, selling your business is a new experience. As such there a lot of things you might not have thought of when it comes to the M&A Process. A lot has to be done before taking the business to market.
Compilation of a CIM (Confidential Information Memorandum). This is a very important document. It will be the first impression a potential buyer has of your enterprise. Think of it as a marketing piece aimed directly at potential buyers. It showcases your history, your future, your strengths, addresses any weaknesses. It must be thorough enough to answer the majority of questions a buyer may have while presenting it in a way that is easy to understand and interesting enough for a potential suitor to want to learn more.
Population of the Data Room: The Data Room is the virtual document center for potential buyers. Once a buyer has expressed interest in learning more about your business, they will have access to all relevant documents they might need to inform their decision. Having this prepared ahead of time, in an orderly manner, is an imperative step of the process. This will typically be done in concert with the CIM.
Teaser Development: While the CIM is a very comprehensive document, it is not intended to be circulated widely. Only potential buyers that have been screened for suitability will have access to that, once they have signed an NDA. Hence the name. So how do you get buyers’ initial interest? By building a compelling teaser. While the CIM could be anywhere between 20 and 100 pages, the teaser is 2 or 3 pages at most. It lays out the general information of your business in a way that is specific enough to entice readers to want to know more, but vague enough so nobody can guess it is your company that is for sale. Building a good CIM and Teaser are critical to a successful process, and many revisions will be required to perfect them.
Building a List of Potential Buyers: In anticipation of going to market, your M&A Advisors will start compiling a list of potential targets to approach. This list will consist of financial buyers and strategic buyers. Financial Buyers will be Private Equity Firms or High Net Worth Family Offices that have holdings or mandates that match your business. Your M&A Advisor should have a network of these firms as well as know what their broad mandates are. Strategic Buyers will be buyers that would want your business for strategic reasons. It might be for your client base, or your distribution network, or maybe your product lines dovetail well with their offerings. There are multiple reasons your business might be of strategic value to a buyer. Your M&A Advisors will work with you to identify these potential targets.
Depending on the complexity of your business, all of these processes could translate to 2 – 4 months of preparation time.
This time of year, many of the financial institutions that would be typically approached are away for the summer recess. Probably a lot of the decision makers for strategic buyers are too. It would not be advisable to go to market in the middle of summer, as you might miss the opportunity to connect with a great potential buyer. But this does afford you the opportunity to complete the preparations described in A) above.
C. Macro-Economic Factors
The Post-COVID world has brought many external macro factors that have slowed down M&A activity overall. Multiple years of rising interest rates has caused uncertainty and made the cost of capital more expensive. But things are turning around. The growing market sentiment points towards an uptick in M&A activity in Q3 and Q4 for 2023. This translates to more potential buyers for your business.
There are a myriad of things you as business owner you can- and should- do in anticipation of an exit. If you are even considering such a transaction – NOW is the best time to start acting on it and please don’t hesitate to reach out for a free in-depth consultation