Now you’ve decided to sell your business, it’s time to prepare for the big day. You need to learn what the acquisition process involves to avoid any potential hurdles along the way. While you could do this alone, engaging an experienced mergers and acquisitions (M&A) advisor can help you get the most out of the acquisition and help you through the process.
How an M&A Advisor Helps You
An M&A advisor allows you to stay focused on the business operations, avoid mishaps, and they’ll steer you through the identification, negotiation, due diligence, and closing phases of a sale. One of the most important decisions, for example, in going to market is determining a likely price and deal structure that the market will accept.
If you price a business too low, you risk leaving money on the table. If you price a business too high, you risk the marketplace ignoring your offering to pursue more attractive opportunities. Price, however, refers to a pretax number and ignores the timing of payments and tax liability. You should consider both as part of any pricing discussion.
An M&A advisor provides an intelligent analysis of the financials but also knows how to peel back the onion to understand the key components of your business that could impact a transaction. This includes looking into assignment of contracts, leases, concentrations of revenue, working capital needs, industry trends and key employees, to name a few.
How to Prepare Your M&A Advisor
If you want a quick, easy, acquisition at the highest possible price, you must equip M&A advisors with everything they need to position and promote your startup.
But what are those things? Every acquisition is different, and each M&A advisor has their own way of doing things, but you should share, at the minimum, the documents and details listed below. Even if you’ve not hired an M&A advisor yet and are just thinking of selling, collect this information now, so it’s handy for when you’re ready to get your acquisition underway.
We write a lot about preparation because we know it can make or break an acquisition, and being ill-prepared will cause stress too. The earlier you gather the information on this list, the less pressure you’ll feel when an M&A advisor or buyer asks for it. You won’t need to delay your acquisition while you collate data but hand it over and then get back to running your business.
1. Your Goals
An advisor can best serve you only when they understand why you want to sell your business, the business’s performance, and what is important to you in the acquisition.
If you’re planning to retire or start a new business, how much do you need to exit? Do you prefer the highest price or the fastest transaction? What is more important, total compensation or cash at close? Are you willing to stay through a prolonged transition? How important is the cultural fit of the new owners?
This is just a subset of questions that M&A advisors ask to understand your needs. It could impact how the advisor prices the business, the category of buyers they market to, or perhaps lead them to advising you to delay going to market.
2. Financial Records
Include at least three years’ tax, income, and expense records on a trailing basis (where they’re continuously updated). You or your accountant does this already, but you should also prepare a system where you can share them at a moment’s notice – even if it’s just a folder where you store duplicate records. That way you can share the folder whenever the M&A advisor asks.
3. Intellectual Property Summaries
If you create or own intellectual property (IP), record a summary of the details. Include who in your company owns it and any signed non-disclosure agreements (NDAs) or Proprietary Information and Invention Assignment Agreements (PIIAA). You don’t need to go too granular here (unless you want to). Just enough to justify your valuation to a potential buyer.
4. Equipment, Fixtures, and Inventory Lists
Identify assets like equipment, fixtures, and inventory that would go into a potential acquisition and then list and photograph them (include values if you can). Your M&A advisor must specify what’s included and excluded from an acquisition since this will affect your valuation. Anything physical you’ve bought to help run your business could fall under this category.
5. Real Estate
Do you own or lease real estate or other property? Get copies of all the leasing agreements and share them with the M&A advisor. Again, this clarifies what is and isn’t going to be part of the acquisition and will also help potential buyers prepare for transition (leasing titles and so on would need to transfer into the new owner, which takes time to organize).
6. Team Breakdown
An M&A advisor also wants to understand the people that make up your business. Share their positions, salaries, benefits, and a short biography (include their CVs if possible or links to professional networks like LinkedIn). If you hire contractors, share their contracts and highlight any rights to work done on behalf of the company, such as intellectual property.
7. Marketing Materials
You’re the expert on the product or service your startup offers. You have all the marketing material to promote your business and express its unique value proposition. The M&A advisor will likely need these materials, as well as ads and performance statistics, to understand and then sell the upside potential to buyers who’re unaware of your unique selling points (USPs).
8. Operational Materials
We’re heading into confidential territory here, but if your business model is complex you might need to share operational materials with the M&A advisor. In many cases, the M&A advisor acts as your proxy, and the better they understand your business, the easier it’ll be to sell. Share everything you can to justify projections and showcase your desirability.
The above is just a small selection of possible materials you’ll need to share with an M&A advisor. As your acquisition sidekick, they’ll let you know exactly what they need and when. But you’d do well to prepare the basics in advance to speed things along. The quicker they get the details, the faster they can market your startup and get you that life-changing acquisition.
Interested in a no-obligation consultation with an advisor? Request an introduction by clicking the “Hire expert help” button from your seller dashboard. Our counsel, James Graves, will match you with the right expertise. Or contact James directly for an introduction at james@acquire.com. Good luck!
The content on this site is not intended to provide legal, financial, or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional.
