Are you trying to determine whether or not it is the right time to sell your business? If so, you probably have a number of questions about the process and how you can assemble the right team and partners to make sure that you have the best outcome for you and your business.
Though the process of selling your business may seem daunting, the right M&A advisor can guide and prepare you for each step of the sell-side M&A process.
Below is a brief overview of the process, and what you need to be prepared for.
Do you have questions about the process? Contact us today!
Phase 1: Drafting and Outreach
The first phase of the process consists of determining the pool of potential buyers that will be involved in the process. You and your M&A advisor should have a detailed discussion about the type of buyer that you are looking for and your goals for the transaction. Based on this discussion, your advisor should compile detailed research on each buyer and you should both agree on the strategic rationale for their participation. Because the advertising and marketing industry is such a specific field, you will need to have a knowledgeable M&A advisor with deep industry expertise at your side to help find an ideal pool of potential buyers.
Simultaneous with this research, an M&A advisor will typically begin drafting a descriptive memorandum on your company, to ultimately be shared with the participants in the process.
The descriptive memorandum usually includes information like:
- Overview of services and capabilities
- Clients and industry expertise
- Financial summary
- Case studies
- Management biographies
The goal of this document is to give any potential buyer the adequate information they would need in order to evaluate the company, make an investment decision, and submit an offer to purchase the company.
Reaching Out to Potential Buyers
Once you and your M&A advisor decide which buyers are best suited to what you are looking for, your advisor will reach out to the agreed-upon list of buyers. In many cases, this can be done with a teaser email (carefully crafted to not reveal anything about you or your company), phone, or regular e-mail outreach. If your M&A advisor has experience in the industry, they should have relationships with many of the buyers that you are considering and should be able to connect with them quickly with initial outreach.
Once you have received responses from potential buyers that are interested in starting a conversation, your M&A advisor will start negotiating confidentiality agreements. This improves your ability to maintain control over the process and what information is shared with others in the industry. Once the confidentiality agreements are signed by both parties, your advisor will send a descriptive memorandum or other summary on the company to the potential buyers.
Narrowing the Field
After the initial contact, signing confidentiality agreements, and sending out memorandums, the number of potential buyers should start to narrow down to the more serious buyers. At this point, the advisor solicits preliminary indications of interest or letters of intent. Your advisor will let buyers know that they need to respond before a specific deadline depending on the pool of buyers and the deal specifics. If you want to go with the first buyer that gives you an offer, the deadline can be as short as one week. On the other hand, if you have ten buyers looking over the memorandum and coming back saying they have questions or they need to discuss it internally, then the deadline will be longer. Depending on the level and breadth of interest, your M&A advisor should begin to focus on conversations with the interested buyers.
Phase 2: Bid Process
The bid process begins with the M&A advisory firm conducting management meetings with interested buyers. Depending on how conversations and negotiations proceed, you should hopefully have multiple bidders interested in the company.
Preparing Due Diligence
At this point, you can start compiling essentially all relevant information into a data room. You will want to include the full breadth of the company’s financials, employee information, standards that your company runs by, and anything that the ultimate buyer will need to know to successfully operate the agency going forward post-closing. This information is not to be revealed to the current bidders. Your M&A advisor will let you know what information is relevant to be organized when that information is to be shared.
Near the end of the bid process, your M&A advisor turns to the task of receiving final offers (terms sheets/letters of intent) from interested buyers. After you have received all the bids, the last step of the bid process is to choose the winning term sheet or Letter of Intent (LOI). This decision may be much more complex than simply selecting the highest number, as individual offers will have different structures, terms and conditions. Your merger and acquisition consultant will help you sort through the details of each bid, helping you understand the components and determine which best suits your unique needs.
Phase 3: Contract Review and Due Diligence
Once you reach phase three, you are usually dealing with just one buyer – the bidder you selected at the end of phase two. Your M&A advisor will lead you through multiple processes during phase three – contract review and due diligence.
Contract review begins when the seller receives the Purchase Agreement . This document specifies exactly what company assets and liabilities are included and excluded in the sale, the specific deal terms, and the representations that each party is making through the transaction. Commonly, negotiations play an important part in ensuring both the seller and the buyer are satisfied with the final terms. Contract review is time-consuming and requires extreme attention to detail as well as an eye for the big picture. You, your M&A advisor, and your lawyer can expect to negotiate contract terms in the Purchase Agreement and possible employment agreements up until the closing of the transaction. If applicable, an employment agreement typically covers your future role in the business going forward as well as your salary and benefits in the acquiring business. Depending on the role of individual members of your management team, long-term employment agreements may be offered to select other employees as well.
Since the potential buyer will need more information about your company to decide if your agency is an ideal acquisition choice, you can now give the buyer access to the information in your data room. They will typically send a due diligence request list that you and your advisor will review and compile. In this phase, it is critical that you give buyers enough information about your company to avoid problems later in the process. Your M&A advisor will guide you through this process and ensure that you will provide the proper depth of information for buyers to review.
If there are any potential issues that may have financial or legal ramifications for either your side or the buyer’s side, you will want to know about them before closing day. To help with that, you and your advisor will also do reverse due diligence. In your due diligence request, you may want to request proof of ability to pay the closing consideration and future earnout payments.
Phase 4: Closing
When you reach closing, you and your M&A advisor have already managed many issues, handled various negotiations, and dedicated time and resources to get here. However, there is more to closing than simply signing the final documents. The final phase involves several steps of its own.
First, you must satisfy any closing considerations and requirements. These can include finalizing the Purchase Agreement and employment agreements, completing disclosure schedules, notifying select clients, preparing to announce the deal to the public and staff, and getting any necessary consents (landlord, bank, etc).
Your advisor will work with you to make sure that all these items are completed with appropriate lead time prior to completing the transaction.
Though the process can seem complicated, having a strong team of advisors (M&A, Legal, Accounting, etc.) can help navigate you through the intricacies of a transaction. Working with experts that have deep transaction knowledge and industry experience can lighten the burden of this process and help ensure a successful closing.
Your M&A Advisor
Clare Advisors, headed by Managing Partner John C. Burns III, offers M&A advisory services for businesses in the digital advertising, marketing, business services, and media spaces. With more than 20 years of experience in financial management and investment banking, John and his team have completed over 30 M&A transactions, including both sell-side and buy-side representation.
Do you have questions about the transaction process? Contact Clare Advisors!