The sale of a business is typically the single-most significant event in an owner’s business life. As most owners have never sold a business, any apprehension is understandable. If you are contemplating or preparing for the sale of your company, we believe it’s critical to understand the typical components of a deal so that you will be ready to embark upon this journey. When it comes to engaging buyers, many aren’t sure how to start
In this blog series, 10 Major Steps in Selling a Business, we examine the important elements common across most sales in collection agency M&A through a case study of a previous transaction our firm completed. We will call the selling company “Company, Inc.” to preserve confidentiality. The second part of the series explores how to initially reach out to your list of prospective buyers. The first part, Preparing to Sell, can be found here.
Approach Possible Buyers
Once the information is prepared and the buyers are identified, the exciting part begins: contacting potential buyers. Before you start, be sure that you are approaching the decision-makers directly. This requires a bit of homework up front, but it is essential that you reach the person who has authority to conduct a transaction. This will avoid delays in the process and it will protect confidentiality. The actual approach can be done via the telephone, e-mail, mail, or fax. Typically, the name of the business for sale is not disclosed at this point, just a brief description of the opportunity that’s interesting enough to gain their attention, but not so detailed as to divulge the identity of the seller.
For Company, Inc., we starting actively engaging buyers by e-mail primarily and asked them to reply or call us if interested. We initiated dialogue with all the buyer candidates on behalf of our client.
Execute Confidentiality Agreements
An extremely important aspect to any deal is keeping it under wraps until the appropriate time. If the word gets out prematurely, it can be detrimental to the sale of your business, so you need to maintain control of when clients, staff, or competitors learn about the sale. Interested parties who respond to the initial approach should be immediately asked to execute a confidentiality agreement. If information is disclosed, the seller has legal recourse.
Once the confidentiality agreement is executed, both parties and their advisors are usually comfortable enough to speak freely about the details of opportunity. If the buyer appears to be qualified in terms of both their interest and their financial ability, the information memorandum is sent to them for review.
Conduct Q&A with Potential Buyers
Buyers rarely submit a qualified or bona fide offer for a company based solely on the information memorandum. They often have additional questions about the company. During this period of Q&A, it’s essential for the seller to stay focused on their business and only divert their attention when necessary. Buyers will go about gaining further information in different ways.
During this stage, the goal is to determine which buyers will distinguish themselves by expressing a higher level of interest and ultimately submit a qualified offer. The use of deadlines throughout the process is typical in order to keep the process moving. These include target dates for executing confidentiality agreements, deadlines to receive buyer questions, dates to receive initial offers, etc.
In the case of Company, Inc., we received multiple lists of questions after we started engaging buyers who were interested, some of which were answered via e-mail and others that were answered in conference calls with the shareholder. All buyers received answers to all questions, including those asked by others, to ensure everyone was basing their offer on the same information. In this particular case, our client was willing to schedule conference calls with select prospective buyers in the hope that it would speed up the process by not only providing answers to their questions but also allowing them to ask any follow-up questions that arose.
The selling process often lasts four to six months, sometimes shorter, sometimes longer, depending on either side’s focus on the transaction. Fortunately, Kaulkin Ginsberg can help you navigate those choppy waters. We have worked with small, mid-sized, and large privately-owned companies, Fortune 500 corporations, and financial investment firms on their collection agency M&A strategies for thirty years. Whether you’re seeking professional sell-side representation, assistance forming a partnership or joint venture, a transaction assessment, or a valuation, Kaulkin Ginsberg will guide you through the process. For more information, or to schedule a confidential discussion of your business goals, contact us at email@example.com.
Stay tuned for the next part of this series.