The process for selling your company

The sale of your company is a complex process that on average takes about 6 to 12 months. Although no two processes are the same, several different successive phases can be distinguished. In this article, we take you through the sales process step by step , from the very first cup of coffee to popping the champagne at the moment of transfer.

1. Acquaintance

At Marktlink we often receive entrepreneurs who have already made the choice to sell (part of) their company. At the introductory meeting we discuss the specific wishes and plans of the client. Why sell? What is the plan for after the sale? How can we make the sale a maximum success? We also discuss all possibilities in terms of sales arrangements and transactional structures. Sell to strategists, sell to investors, maybe a pre-exit or securing an MBI-candidate, et cetera. After an initial acquaintance and if the entrepreneur and the consultant feel that click and see the possibilities, the process is started together.

Marktlink Mergers & Acquisitions
Marktlink Mergers & Acquisitions

2. The information memorandum

As with the sale of a house, the company needs to be properly mapped out before we enter the market. An information memorandum (or ‘bid book’) is in fact a sales brochure in which all the ins and outs of a company and the market are described, so that a potential buyer gains a good understanding of (the possibilities of) the company. For example, pages are included about the corporate structure, the business activities, the staff, the role of the director and major shareholder, clients, possible suppliers, the financials and, of course, the future expectations. Marktlink thoroughly examines the company and the associated sector prior to drawing up the information memorandum and analyses it by requesting relevant information. Eventually, all information will be stylishly converted into one document with the aim of informing and enthusing potential buyers and/or financiers.

3. Value assessment

Entrepreneurs often already have a price expectation for their company when they visit Marktlink. In many cases, this price expectation is based on the ‘multiples’ in transactions of comparable companies that have been highlighted in the media. However, these multiples can create a distorted image or false expectations. Marktlink, therefore, offers its clients an indicative value assessment. A valuation is carried out on the basis of the available financial figures and the company’s position in the market. This value assessment also takes into account future growth potential and/or synergy benefits. Marktlink has its own Register Valuators (RVs) at its disposal who, according to the most recent valuation methodologies, can determine an indicative range for the expected price. Ultimately, the market determines the price of the company; the value and the price are therefore seldom equal.

4. Longlist

Subsequently, a search profile with suitable buyers will be drawn up. Does the client’s company fit well with other strategists or better with an investor with a number of adjacent participations? Perhaps the company is suitable for an MBI candidate with a lot of experience within the industry? A combination of different types of buyers may also be desired, so that the client can sample all flavours. The purpose of this analysis is to identify buyers who best match the company and will assign the highest value to the company. In this respect, knowing the market well is crucial in order to ensure that suitable buyers are not overlooked. After careful screening of potentially interested parties, a longlist will be drawn up. These parties will subsequently be presented to the client in order to jointly arrive at a shortlist of parties that will eventually be approached.

Marktlink Mergers & Acquisitions

5. Approaching potential buyers

The time has come, we enter the market and start to approach potential buyers. On the basis of telephone conversations we will gauge the interest of the various parties. Thanks to the extensive network that Marktlink has built up over the years, we almost immediately get in touch with the owner, CEO or CFO of the parties to be approached. This saves an enormous amount of time and saves us from having to reach the right person via the reception desk. The approaches are often carried out in combination with a teaser. This is an anonymous profile of the company, in which a number of key indicators are specified. For example, the turnover and EBITDA margin, the number of FTE, the region in which the company operates and a brief description of the activities. It goes without saying that we carefully check whether the data mentioned are not too specific and potential buyers can easily guess which company it is. The teaser allows the persons concerned to determine whether there is a need for additional information.

6. Non-disclosure agreement

The interested parties will then receive a non-disclosure agreement (in abbreviated form: “NDA”). This NDA has been drawn up by the lawyers of Marktlink and obliges parties to handle received information with care and discretion. In addition, the parties are requested to remove all information if the process does not lead to a transaction with the party concerned. After signing the NDA, the parties will be informed of the name of the company and receive the information memorandum.

7. Management meetings

Buyers nearly always have additional questions based on the information memorandum. In addition, there is often a need to get a feel for the organisation through a conversation with the seller. Buyers are therefore given the opportunity to schedule a “management meeting” at a neutral location (e.g. at one of our offices). Here the buyer and the seller can get to know each other and go deeper into certain matters.

8. The bidding phase

After the management meetings, parties are requested to make a bid (or “non-binding offer”). We will indicate which subjects we expect to see in a bid and will at all times try to obtain multiple bids from the market. On the basis of the bids received, we work out the negotiation strategy with you, the client. Although the purchase price is an important aspect, we often see that the party with the highest bid does not always become the ultimate buyer. Conditions and trust are usually just as important in this respect. All things considered, one party is chosen to continue the process exclusively.

9. The Letter of Intent (LOI)

The agreements in principle made are laid down in the form of a letter of intent (or “LOI”). This is a preliminary purchase agreement that includes aspects such as the purchase price, the payment mode and payment terms, guarantee obligations, a non-competition clause, a due diligence, management agreement, resolutive conditions, et cetera. During this process, the lawyers are called in and negotiations take place to reach broad agreement. In principle, once the LOI has been signed, there is still a possibility that the deal will not materialise. However, this seldom happens in practice. In 95% of the cases, signing an LOI leads to a transaction between the parties.

10. Due diligence

After signing the LOI, the purchasing party, possibly in cooperation with an accountant, tax consultant or lawyer, will conduct an investigation into the accuracy and completeness of the information provided on which the LOI is based. This due diligence investigation may vary from a short procedure to a very extensive process in which the entire company is critically examined. Additional information will be requested by the buyer to prevent so-called “skeletons in the closet” from coming out after a possible acquisition. In order to avoid an unexpected price adjustment, the LOI will include provisions in respect of possible consequences arising from the outcome of the due diligence. In this phase, Marktlink will negotiate with the buying party about the due diligence results and monitor that the information requests are handled correctly.

11. Purchase agreement

After going through the due diligence results, the lawyers can negotiate and draw up the final purchase agreement (or “Share Purchase Agreement”). This document contains all detailed arrangements as set out in the LOI, possibly supplemented with new provisions. Often several additional agreements are added, such as a lease and/or management agreements.

12. Closing

Finally, the purchase agreement is recorded and signed before the civil-law notary, the shares are officially transferred, and the purchase price is paid. This, in fact, completes the transaction and the champagne bottles can be brought out. Depending on the agreements made in the purchase agreement, a transfer period (often no longer than one year) may start for the seller, during which the entrepreneur phases out his or her tasks and transfers them to the (new) management. At last, the seller can finally enjoy a well-earned pension or focus on new challenges.