Private business owners decide to sell their business for many reasons. You may want to retire, gain financial liquidity for new opportunities, or pursue new synergies with a complimentary business. You may find your business growth exceeds manageability, or perhaps you want to take care of your family by de-risking your assets.
The Canadian marketplace is poised for major shift. A 2019 survey revealed 40% of Canadian dealmakers expect the volume of domestic M&A deals to go up significantly as acquirers look to take advantage of continued growth in the domestic economy.[1] However, slowing global economic growth[2] may lead some companies to be cautious and more careful in their due diligence when making an acquisition. This means it’s more important than ever to enter the market prepared. For a successful sale, your business needs to stand out in a crowded, competitive marketplace.
By taking active measures now, you’ll not only be better prepared to weather the sales process, but you’ll increase your odds of finding the perfect buyer, maximizing price and ensuring a seamless transition. If you don’t prepare for a sale, you may not get the right price for your business, leaving money on the table. Your business operations may be disrupted during the sales process due to lack of preparation or confidentiality. Importantly, you risk the possibility of a failed deal if you enter the sales process unprepared.
Six essential steps
Following these steps can help you increase the likelihood of a sale:
1. Plan for success
Planning the sale of your business should begin well in advance. You need to develop a strategy that includes:
- Immediate adjustments to your business that will increase its value to potential purchasers,
- Gathering information on the best time to sell,
- A potential purchaser list with key points on how your company would benefit each purchaser,
- A breakdown of what arrangements would be needed with suppliers and customers, and
- A list of employee and real estate commitments.
Developing this strategy will help you understand the strengths and weaknesses of your business, groom your business for sale and make sure you can maintain “business as usual” during a potentially long sales process.
2. Get the best price
Timing and market conditions will affect the price you get for your business. In addition, finding a strategic buyer—a buyer who can leverage the strengths of your business with another operation—can potentially give you a greater return than a buyer who plans to keep the business running at status quo. Your business advisor can help you with a diligent sales process that should help improve the price a potential purchaser will pay.
3. Get prepared
You’ll need to prepare an information memorandum, which is an overview of your business that will be used to attract potential buyers. High-level details such as a company profile and market analysis are provided to determine level of interest and set an initial price. Detailed particulars are provided only after a potential buyer has been pre-qualified as a serious would-be purchaser and they sign a confidentiality agreement.
4. Find a buyer
Identifying potential purchasers that have a good strategic fit with your business and vision is achieved through a combination of confidential research and developing a list of purchasers who are active in the market. Once appropriate targets are identified, we will approach them confidentially, keeping the names of the company out of initial discussion to avoid harm to your ongoing business.
5. Negotiate the deal
Careful negotiation is essential, as the terms you and the buyer agree to will affect the price you will receive for your business. To negotiate the terms that give you the best deal, you should carefully consider the following:
- Should you sell assets or shares in the business?
- How much of the purchase price do you want at closing?
- Will there be deferred and/or contingent payments?
- How involved (if at all) will you be after the sale?
- How do you want your management and employees treated after the deal?
Your advisor should be there to assist you during the negotiating phase. This will help you stay focused on the important issues and simplify the coordination of other professionals, such as legal, tax, environmental, and accounting representatives. It will also keep negotiations on a professional level, so you can achieve terms that best meet your desired outcome.
6. Move quickly to finalize the deal
Once you locate a buyer and come to an agreement on major terms and price, it’s best to close the deal as soon as you can. Remember, your business is not really sold until the paperwork is signed.
Plan for success.
The sales process is a long one, so it pays to start planning well in advance. It also pays to have the right advisor beside you every step of the way. You’ve invested countless hours and immeasurable energy into building your business, so it’s important to put the same level of investment into ensuring a successful sale.
At Grant Thornton, our business advisors can help you through the sales process, from initial planning to successful close. Our professionals offer meaningful, actionable and holistic advice to allow you to meet your business goals and needs. Our commitment is to work closely with you throughout the sales process to make sure it’s managed efficiently, professionally and successfully.
[1] Mergermarket and CITI, “Upward bound,” 2019.
[2] Moody’s, “Global economic growth will remain sluggish as pessimistic business sentiment and trade uncertainty cloud 2020 outlook,” November 14, 2019.
