CDI Global

Tips for Preparing to Sell a Company

Generating the highest price for your company requires a systematic approach to the selling process. Through careful preparation, and owner can ensure fair terms and the most favorable price. These preparations to sell a company involve:

  • Preparing confidential selling memorandum (also referred to as a confidential information memorandum)
  • Researching and selecting the right potential buyers from throughout the world
  • Attracting qualified buyers to participate in a competitive selling process
  • Negotiating a letter of intent and non-binding offer including a summary of deal structure and key terms
  • Providing the necessary information for the selected buyer to conduct due diligence
  • Negotiating the definitive purchase agreement
  • Closing the transaction

The overarching challenge for the owner in the sales process is to handle the many considerations and decisions required for successful outcome while keeping focused on running the company without disruption for employees, customers, suppliers and other key stakeholders.

Selling a company is one of the most important decisions that an owner/founder will ever make and needs to be made with consideration of the key factors for successful sales processes. Generating attractive offers from among potential buyers requires selecting the right bidders to participate in the process and managing that process in a way that creates price competition among the bidders. CDI Global helps to achieve this kind of competition by searching for the right buyers both domestically and internationally. We compose sales teams made up of experienced professionals with industry knowledge and decades of transaction experience. CDI then uses a very disciplined search process with clear guidelines, progress milestones, data room support, and sophisticated transaction marketing approaches.

From an owner perspective, preparing for and conducting an effective sales process requires careful preparation of needed documents and information, deciding on reference pricing for the transaction, and patience during the several phases of the sale including marketing, due diligence, negotiations and closing.

Putting the right value on a company that an owner has poured decades of passion and sweat equity into building requires objectivity and sophistication. There are many factors to consider, including the company’s historical financial performance and expected future earnings growth, benchmarks such as the trading multiples of comparable companies in the public markets, recent transaction pricing multiples (for example, multiples of revenue or cash income), and formal pricing models (like using discounted cash flow). Not all these techniques are appropriate in every situation. Additionally, in certain industries, valuations include other methodologies unique to the industry characteristics. In any case, creating the right reference price guidance for perspective buyers requires considerable judgment along with analytical expertise.

Serious buyers will make non-binding offers but an initial offer won’t necessarily be their best offer. CDI Global will help the owner identify the right potential buyers to participate in the process, qualify the interest of these buyers, promote competitive offers from those with serious interest, and evaluate offers based on price, deal structure, terms and conditions, impact on employees and customers, and other pertinent factors. In doing so, we can help the owner select the best offer and decide whether to go into an exclusive due diligence and negotiation phase with a single buyer.

CDI Global will guide owners through the several phases and major steps of the process. In this regard we are both expert advisors and friendly copilots working closely with our clients. In getting ready for sale, initial focus is on financial information. More specifically, having audited financial statements can help build confidence with potential buyers about the company’s historical financial results. If regular audits have not been performed, it may be necessary to secure external verification of the available financial statements prior to sale. Privately-owned companies often manage businesses in a way that minimizes taxes, which can include understating the inherent profitability of a business as it would appear for the buyer after closing. In this case, we work with clients to create a normalized earnings picture by adding back certain expense items. A more accurate picture of the company’s profitability may increase earnings to which a pricing multiple would be applied. These adjustments are customary for purchase of private companies and can yield higher valuations for a business.

It is also extremely important to maintain business continuity during the sales process. This means strict confidentiality about the transaction. The business should perform as well as it would if there were no sales process underway. That requires that management and employees not be distracted by rumors or concerns about the sale. It also requires that the seller guard against competitors taking advantage of the situation to capture customers from the seller during the process. CDI structures sales processes in a way to provide for confidentiality of the process itself and all communications that may take place with interested parties during the process.

Transactions involve many complex issues often requiring specialized expertise for deciding how to handle legal and tax matters, financial disclosures, intellectual property, real estate, environmental compliance and other issues. Accordingly, legal, tax and audit, environmental or other professionals may be engaged by the owner to work through these issues during due diligence. CDI Global continues to direct and coordinate the activities of these advisors through successful completion of the transaction. To find the best deal and ensure a smooth process, finding the right team of advisors when planning to sell a company is key.

Jeff Schmidt

CEO, CDI Global

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