Preparing for Sale
While the M&A process can take a year or more, there is lots that a company can do to prepare in advance to speed the process to the desired conclusion. “If you want a structured outcome then you need a structured process. Start early and consult with professionals that can help you get through this,” Del Pero says. He advises beginning conversations with your team of advisors one to two years prior to going to the table to sign a deal to make sure your financial house is in order.
Horner suggests that business owners looking to sell start focusing on accounting systems early and begin the steps of the financial due diligence process to have clarity in the process, including the following:
- Understand revenue and profit by product and by customer
- Bring the company into the discipline of month-end financial closings
- Ensure the financial systems are GAAP (Generally Accepted Accounting Principles) compliant
- Conduct year-end external audits
Horner says that going through these steps can be beneficial for smaller organizations that are preparing for the M&A process. Just as shoring up your financial house is important, Weyant also recommends conducting environmental due diligence to ensure your safety processes are sound.
With the right foundation prepared, the letter of intent provides one last opportunity for a seller to establish expectations about the future of their company. Also known as a term sheet, a letter of intent documents the expectations of both the buyer and the seller during a transaction. The letter is a crucial step in aligning expectations concerning the timing of the deal, pricing and how the future company will look. It gives the potential buyer exclusivity to work with the seller without the distraction of other potential buyers, and it provides the seller the option of confidentiality around additional information they may want to share with the buyer.
Thorough preparation for the M&A process can help keep disruptions to a minimum. This is particularly important because, as Horner puts it, it’s safe to assume that business won’t run normally during and immediately following the transaction. “An integration or acquisition requires a significant amount of focus,” he says. “People need to really be aware of the change that’s going to happen to the business.”
But the rewards – a smooth deal that brings true value to both parties – should make the work worthwhile. Del Pero concludes, “You’d much rather sweat a little bit in peace then bleed in war.”