Taking into account that all the phases of a corporate operation are highly important, in the following article we will analyze the most delicate points present during this process. This way, you will be more prepared for when you consider selling your business. These points are the following:
- Know how to value your company to set a fair selling price
- Find the ideal buyer for your company
- Understand the due-diligence process
- Understand the structure and functions of an SPA
How to value your company and why it is important
Maybe you never thought about how to value your company because you were not aware about the importance this factor has in the M&A world. Nevertheless, knowing the value of your company is vital for a successful sale.
A lot of business owners ignore the importance of making an in-depth valuation analysis, this is essential not only for a good sale but also so that we can apply improvements within the company and upgrade its performance. Generally, what we believe a company is worth differs with what it is really worth.
The valuation of a company is a technical analysis that requires a deep and fundamental financial know-how. The first step is to determine the characteristics and factors that provide value to your company so an educated guess can be made.
To sum-up, knowing how to value your company is ideal for:
- Preparing a good negotiation and being able to maximize the price of the company.
- Finding a middle ground between the two parts as the views of the buyer and the seller tend to differ on the value of the company.
- Understanding the position of the company in the market compared to competitors.
It is an important first step for starting a corporate operation in the right way. If you want to read more on the topic go to our article “How to value a company? The usefulness of the business valuation process”.
How to find the perfect buyer for your company?
It is important to know how to value your company, but also finding an ideal buyer for it. You need to find a solid offer as well as a buyer that will transmit confidence and tranquility to the business owner. And this is no easy task.
The search of the perfect buyer and a good negotiation are key elements for a successful sell that reflects the hard work of the business owner. That is why it is important, first, to avoid falling in the mistake of selling the company to the first counterpart that makes an offer, and secondly, to know how to identify a good alternative.
To be successful in this step of the process it is necessary to answer three questions:
- Which are the different types of buyers?
- How to know if a company might be of interest for a buyer?
- What are the research methods for finding ideal buyers?
The question is: How? This general overview can help.
Types of buyers:
Knowing the profile of the businessperson or entity that is willing to buy your company is key. The 6 main types of buyers are the following:
- Current clients
- Foreign companies
- Venture capital
- Companies from other sector
Analyze or identify what type of buyer is suitable for you is not easy, therefore it is important to know the different interests each buyer has and if your company matches them. Due to this, it is important you are aware of the following matters:
- Knowing the trends in the sector and the participation of the buyer in it.
- Knowing the distribution of the different business lines of the potential buyer.
- Knowing the strengths, weaknesses, opportunities and threats of the potential buyer.
However, how can we answer these questions? We recommend you to apply the following tools:
- SWOT Analysis, it will help you understand the strengths, weaknesses, opportunities and threats of the sector, your company and the company of the buyer.
- Porter Five Forces, will help you know if the sector of your company seems attractive for a certain type of buyer.
- , they are useful to analyze the business portfolio equilibrium of a buyer and identify why your company could add something valuable to a specific buyer.
Nonetheless, this step does not end here. It is extremely important to know how to use the different methods that will make you able to identify the perfect offer and negotiate a benefitial transaction for both parts.
The next thing we will do is understand one of the most delicate concepts inside a corporate operation: the due diligence.
The due diligence
One of the main points during the selling process of a company is the due diligence. During this phase, the level of transparency and precission from the seller should be extremely high, as it is here where the buyer will be able to see in depth and full detail the company he is about to acquire.
It is a crucial step where all the process can collapse or keep on going. This is why it is of extreme relevance to know how to manage this step.
In other words, the due diligence is an analysis of everything that is under the tip of the iceberg of the company to be acquired. Due to its level of delicacy, we recommend you to manage it with extreme caution, and if possible with the support of a professional advisor.
You would think that after the test of the due diligence the process would be over, but there is still left one of the key parts of the process: the sale and purchase agreement (SPA).
The sale and purchase agreement (SPA)
Once the buyer determines the real value of the company that will be acquired and the due diligence is finished, it is time to decide the selling price and prepare the sale and purchase agreement (SPA) of the company. This requires of a lot of care and meticulousness.
One simple paragraph can make a successful operation become a failed one. With this in mind, the SPA is not something to take lightly due to its complexity. The most frequent question is: what is the content of the agreement?
Generally the agreement is made up of 5 sections:
- Description of the transaction
- Terms of the agreement
- Representations and guarantees
- Limited responsability
- Conditions of the agreement
Each of these sections have a high level of importance and they should be perfectly executed to assure a successful operation.
How to sell a business: a real life example
Knowing how to sell a business can be complicated, that is why we want to clear all the doubts you may have regarding the selling process of a business so you can focus on taking the best decision for your future and the one of your company. We wanted to take the opportunity to tell you with full details the acquirement of SumaCRM by Efficy. You might be wondering what is unique about this operation, and the truth is the story behind it is really special, as from the blog of SumaCRM they retransmited weekly the whole selling process with real data and full detail.