So, you’ve been introduced to the development phase of selling your company. We now bring you Part II of our mini-series: the marketing phase. At this point in the process, you should know your company like the back of your hand, and your Confidential Information Memorandum should be complete. It’s time to go to market and meet your future match. Let the games begin!
Not to say this is a game – we’re referring to the back-and-forth that occurs as you search for and ultimately select your buyer. To fall back on our tried-and-true analogy – it’s like dating. Remember those notes you used to pass to the cute kid in class? Something along the lines of: “Do you like me? Check yes or no.” Well, things haven’t changed much since elementary school.
Instead of passing a note, you’ll send out a teaser. The teaser is a taste of your CIM; it contains just enough information to catch the eye of your targets. Your company’s name won’t even be included.
So how do you decide who will receive your teaser? How do you identify your potential buyers?
This is another point during the selling process when a financial advisor gives you a substantial leg-up. (We’re not biased, we promise.) Advisors can help you determine what kind of buyer is best for your company – strategic or financial, big or small, local or on the other side of the globe. And once you know who you’re looking for, an advisor can help you find them. It’s important to remember that your top prospects are not always the obvious ones. If you’re ready to sell, you might have a buyer in mind – perhaps a friendly competitor – or you might already be fielding calls from interested parties. But if your goal is to receive the highest value for your company, your best bet is to cast your net wide and keep your options open.
Once you’ve identified the prospects and sent out your teaser, your targets will either decline to move forward in the process, or they’ll sign a confidentiality agreement in exchange for a copy of the CIM (comparable to checking the “yes” box on your love note). In the following two to three weeks, you can expect an ongoing Q&A session. Targets who still are interested in pursuing your company after reviewing the CIM will perform their own financial analysis, which inevitably leads to an interrogation a few questions. These will be directed to your financial advisor.
Next, your advisor will send out a process letter along with a deadline, asking for Indications of Interest (a non-binding valuation the buyer places on your company ) and general offer terms. Each IOI will be compared, and several buyers – typically four to six – will be selected for the next round. Then it’s time to “meet the family.” Your finalists will be invited for company visits and management presentations. A second process letter will be sent after the visits, which asks for specific dollar valuations and general term sheets.
The term sheets will be evaluated, and your advisor will provide guidance to the remaining parties. At this point, it’s time to pick your match and accept a proposal. Once the ultimate buyer has been identified and a final term sheet is negotiated, both parties will enter into an “exclusivity” period for due diligence.
Check back soon for what to expect during the third and final phase: the closing. Champagne, anyone?