MANAGING THE SALES PROCESS

With your retained advisors generating enquiries and interest in buying the business, you will need to be involved in helping the sales process along.

In order to be prepared to deal with purchasers’ initial enquiries, you should already have groomed the business, prepared much of the information they are likely to want to see and have to hand all the necessary basic documentation, to include:

• Detailed financial information, such as sets of accounts for the last three years and tax returns.
• Schedules of assets and liabilities, giving sufficient detail to enable the purchaser to form a clear view (for example, for leases and loans, indicate the balances outstanding, the interest rates applicable, and number and frequency of outstanding payments).
• Copies of all critical documents, such as leases, equipment leases, title documents, registered trademarks.
• Statutory books and records (which of course are up to date).
• Details of your external advisors.

As you go through this sales process be prepared to be sympathetic towards what may at times seem to be an inordinate number or duplication of requests for information, particularly when you reach the detailed phase of due diligence. It is important not to be surprised or irritated by the number of questions or the degree of detail covering everything from the important to the completely obscure and apparently irrelevant that you may be asked.

Bear in mind that you are looking for these people to pay a significant amount of money to you for your business. To obtain the maximum amount of money you want to leave them with the minimum number of outstanding queries or questions in their minds. It is therefore in your interest to ensure that every query, however apparently irrelevant or repeated, is politely and comprehensively dealt with. Comfort yourself with the thought that the more money they are likely to spend on buying your business, the more questions you might expect them to ask.

Arrangements for initial meetings should be handled by your professional advisors with whom you should consult in advance of each meeting.

Your initial meeting with any interested party is your chance to make a first impression both in respect of yourself and your knowledge of the business and how you sell the business’s prospects. In order to prepare yourself for such meetings, you may want to have a member of your professional advisor’s staff come in as a ‘mock’ interested party for a trial initial meeting and plant tour. Such rehearsals can prove invaluable in helping you formulate what you wish to say; how you wish to say it; and in which order to present the various aspects of your business. After all, the purpose of the initial meeting will be to ensure that the prospective purchasers go away impressed with the business, excited about the prospect of a sale, and keen for further face-to-face meetings in order to progress towards the sale.

Depending upon how you are dealing with the confidentiality issue, it may well be that the purchasers’ opportunities to visit your business will be limited to this and possibly one other meeting before they are expected to make an offer, while they may obtain significant further information by way of papers deposited in a data room off-site (say at your advisor’s premises) to which they are allowed access to review more detailed information away from the gaze of staff. In any event, your advisors should have had the prospective purchasers and their advisors sign a confidentiality agreement (see sample document below).

It therefore pays to be well prepared for these initial meetings and in advance of each meeting you should consult with your advisors. You obviously need to investigate who the potential purchaser is. If you understand why the potential purchaser is interested in acquiring your business, you are going to be better able to ‘sell’ those aspects of your business which fit in clearly with their strategy or business, for example that you have a stronghold in a particular area which fills a geographical hole in their coverage or a distribution network they can use. At the same time, your advisors should be investigating prospective purchasers to establish their likely ability to pay and track record in doing deals. If there is any likelihood that you will be expected to take some form of shares in the purchaser or any other form of deferred payment, you will obviously want to undertake research into the financial stability of the acquiring business and the prospects of actually realising your cash at some future point.

Attempt to establish in advance of the meeting, through your advisors, what particular areas of the business the prospective purchaser wishes to discuss or see and any immediate concerns they have so that these can be addressed.

As one of the purposes of this first meeting will be for the purchaser to indicate any areas of concern and raise queries they need answering, it is difficult to be too proscriptive about a formal agenda for the meeting, but in discussion with your advisors, you should set your own agenda covering the points you want to ensure you get across during the meeting in order to help the sales process. Demonstrate to prospective purchasers that you are serious about selling, evidently committing the time, both to preparing for the meeting and attending it. Ensure that you have cleared your diary in order to provide sufficient time for the meeting. Give instructions that you are not to be disturbed during the meeting, and if through discussion with your advisors you find that one of the things the purchasers want to see is the production department, or the sales staff, then ensure in advance that the production director, or the sales director, will be available on the day for the purchasers to meet and talk to.

In addition to being simple good manners and demonstrating commitment, ensuring that interruptions are avoided is also good tactics, as if the meeting were to be interrupted for something that only you could handle (particularly if it happens a number of times), it may give the purchasers the impression that you are indispensable to the business and weaken their confidence in the business’s strength going forwards without you.

The overriding imperative must however be to remain open and honest about your communications and discussions with the purchaser. The objective of such meetings and discussions is to answer their enquiries so as to provide them with confidence in the business going forwards. Apparent reluctance to answer specific queries can lead to concerns that you are hiding something which damages confidence and therefore the price you will achieve.

It is about demonstrating your personal credibility as well as the business’s credibility and therefore if you appear to be ignorant of significant facts relating to your business, it will damage your prospects of a sale. (This is one of the reasons why rehearsing with a mock initial meeting can be useful in helping to nail down areas where you need to do some revising so as to ensure you have all the facts and figures to hand.)

All businesses have their strengths and weaknesses, opportunities and threats, and face their risks. You need to balance being positive about promoting the opportunities and strengths of the business whilst being realistic about having identified the weaknesses and threats and being able to talk about the actions and contingency plans you have in place to overcome these to support the business going forwards.

In doing so you also need to achieve a balance between being seen to be obnoxiously eager, over confident and over proud about your business, its achievements and its potential, and the opposite of appearing to be apologetic or anxious about the list of downsides you feel the need to disclose to a prospective purchaser. Neither is helpful.

Once you have had your initial meeting with the purchaser, your advisor should be going back to them, after a suitably short period, to obtain some feedback as to their impressions and how they want to proceed.

If possible, you should ensure that you have some form of deputy, backup or representative who either your advisors or the prospective purchaser can reach if you are not available. Nothing causes more problems out of all proportion to the size of the original issue, than a buyer being unable to get a reply to simple questions as a result of you not being around or out of contact. Again, in order to impress upon the buyer that you are serious about selling, it may be worthwhile discussing during your initial meeting that all further questions should be passed to your representatives in their capacity as ‘project managers’ of the sales process. You can explain that you are obviously continuing to manage the business and to maintain the confidentiality of the sales process, but that you are keen to ensure all questions are dealt with as swiftly and as accurately as possible. Having all questions logged by your advisors so that they can track the process and ensure they have all been answered to the purchaser’s satisfaction can reduce the risk of questions being overlooked or enquiries going astray at the company’s premises.

Sample document – a typical confidentiality letter

Here is a typical confidentiality letter that you might expect your advisors (ABC Co Corporate Finance) to ask the purchasers (and their advisors) to sign as part of the initial sale process.

Text supplied by Horwath Corporate Finance

MANAGING THROUGH THE SALES PROCESS

While it varies greatly from one deal to another, the time it takes to sell a business will typically be longer than the owner initially expects for reasons that hopefully will become obvious as you read this book. During this period, you as the owner manager need to continue to manage the business both while the sale is proceeding, and as if no sale process was happening at all (as there is always the possibility that the sale may not conclude, in which case you do not want to have damaged your business by having started to run it without regard to its future).

Indeed, continuing to manage it on this basis is actually good practice in respect of the sale itself as running it with this approach is acting to support the long-term sustainable growth of the business which you are trying to sell.

It should also help you to continue delivering monthly figures throughout the sales process, vital for when the purchaser’s accountants come in to do their due diligence, and look to see whether the trends of prior years are continuing during the current trading or starting to tail off, consideration of which will be vital to them in deciding whether your forecasts going forwards need to be qualified or revised downwards.

You also need to manage both the employees and knowledge about the sale. Broadly speaking, you should only be informing employees on a need to know basis, as until there is certainty as to the sale, advising employees that a sale is being contemplated is to cause them uncertainty about their future and the future of the business. This will be communicated in no short order to both your customers and your suppliers, each of whom will also become concerned about the prospects and future of the business, and also to your competitors who will take advantage of the situation.

The problems this causes are magnified if for any reason the sale then falls through, at which point staff will simply be wondering how long it is before they are up for sale again, competitors will be telling your customers the business obviously has a problem since the sale has fallen through and its future is uncertain, and suppliers will also be considering their situation.

Other than individuals who actually need to be brought into the loop, staff should only be informed about the deal once there is certainty, so that you can advise them who the acquirer is and you can also provide them with security as to the timetable for any changes and knowledge about what to expect.

In practice, if a sales process is conducted properly, employees need never really know until you need them to know. Sales packs should only be despatched to prospective purchasers once they have signed confidentiality agreements, a meeting and a tour of the plant can be arranged under a variety of pretexts (for example the prospective purchasers can pretend to be prospective customers who want to meet with the senior management and also tour the premises), key information that purchasers will need to review in detail can be provided through a data room arranged off-site, say at your advisor’s premises, and if necessary follow-up meetings with prospective purchasers can also take place off-site at your advisor’s premises.