Sell Side Due Diligence

As a baby boomer business owner, you might be saying: "walk me through a sell-side M&A deal" if you’re looking to sell a business in California, this article will outline some crucial tips for sell-side M&A deals.

Walk Me Through a Sell Side M&A Deal: Sell-Side Mandate

The sell-side mandate is the first step in selling a business. The mandate states that an owner is selling a company, considering the sale, and an advisor will handhold the company. While the advisor is handling the company, the sell-side M&A team will be looking for a buyer. 

Working on the sell side, one should look to realize the highest price for the customer possible.

Both valuation drivers and any assumptions sent out should be highly aggressive. During this phase, it’s the responsibility of the buyer to perform due diligence.

M&A Process Sell Side

In mergers and acquisitions, the sell-side process details the deal process from the seller’s perspective. While a business owner may decide to sell for a variety of reasons, this process remains the same regardless of the individual reasoning for selling the company. 

The two most common ways the sell-side process begins are if a potential qualified buyer approaches the company owner or if the latter decides to sell on their own. 

Once the owner decides to sell the company, there are four ways that the seller can proceed with the M&A process and sell their business. The four options are a broad auction, a limited auction, a targeted auction, or exclusive negotiation. 

Broad Auction

In a broad auction, an invitation goes out to many bidders to participate. The seller’s investment agency will cast a wide net while looking for potential buyers, increasing the chances of selling at a high price. 

Broad auctions are designed to maximize the chances of a seller receiving bids from multiple parties, which gives the seller a better chance of selling at the highest possible price.

Limited Auction

For a company with a smaller pool of potential buyers, a limited auction can be the best choice. Such an auction will provide the highest sell price while reducing the disruption to the company. A limited auction is also a better way to preserve confidentiality. 

Targeted Auction

A targeted auction appeals to only a handful of buyers, traditionally between two and five. In a targeted auction, the seller will reach out to these hand-selected buyers. 

This process retains the most confidentiality and minimizes disruption to the company. However, by excluding potential buyers, there is a chance that the seller may not receive the maximum sell price. 

Exclusive Negotiation

In an exclusive negotiation, the seller is working with one buyer. Exclusive negotiation provides the most confidentiality and the least disruption but leaves the seller with few alternatives for receiving a higher sell price. 

Exclusive negotiations often occur if the seller chooses to sell the company after a buyer approaches them. The process results in the quickest close of a sale, which benefits the seller.

Sell-Side Advisory Services

Navigating the sell-side M&A process without assistance can be a daunting task. Sell-side advisory services can provide the help needed to ensure that the process runs smoothly. Sell-side advisory services help maximize the selling price of a company.

See how to plan an exit and sell your manufacturing business. 

A shining example in the field of sell-side advisory services is RBS. Rogerson Business Services offers dedicated M&A sell-side advisors, ensuring that sellers will have the best experience possible. Many of the advisors employed by RBS are business managers themselves, meaning they have first-hand experience on both sides of the M&A process.

Based in California, RBS, Rogerson Business Services has over 35 years of experience in sell-side M&A processes and specializes in low-middle market businesses. Headed by Andrew Rogerson, an author, and multi-certified professional, RBS has had over 70 successful business sales. 

RBS also employs legal experts, CPAs, tax experts, and financial planners to ensure that all sellers who choose RBS have the most successful M&A possible and leave fully satisfied with their experience.

M&A Marketing

The marketing steps for completing an M&A sale of a company tend to fall on a relatively common timetable.

Preparing To Sell

4-6 weeks.

One can divide this portion of the process into two main goals, defining strategy and getting ready.

Defining Strategy

Defining strategy is the first step. It includes several decisions for the seller to make that lay the groundwork for the M&A process. 

• Deciding to sell
• Identifying potential buyers
• Creating a valuation framework
• Set a sell process and timeframe

Getting Ready

This step includes taking the necessary preparations to allow the M&A process to run smoothly.

• Prepare non-disclosure agreements
• Create a confidential information memorandum (CIM)
• Organize finances
• Create projections of income to show potential buyers

Round 1

4-6 weeks.

The first round is where the M&A process begins in earnest. Several steps should be accomplished during this time.

• Non-disclosure agreements exchanged
• CIM distributed to potential buyers
• Receive initial bids

It’s vital to note that while initial bids are non-binding, they can gauge a potential buyer’s interest.

Round 2

4-6 weeks.

Round 2 is when the seller will meet with interested buyers. Several things should occur during this time.

• Hold meetings with interested buyers
• Draft a definitive agreement
• Prepare a data room to facilitate due diligence
• Receive final bids from the buyers

Negotiations

4-6 weeks.

Negotiation is the final portion of the M&A process and the last step in selling a company. During this time, there are things to be finalized. 

• Send the definitive agreement to buyers
• Enter an exclusivity agreement with a single buyer
• Present the buyer's terms to the board
• Receive board approval
• Sign the definitive agreement

Once the definitive agreement is signed, the M&A process is complete. 

Sell Side Due Diligence and QoFE

Sell Side due diligence is vital to a successful M&A sell-side process. Conducting due diligence can help maximize the profit from their company. 

Sell-side due diligence entails determining and assessing the company’s value. It can help determine a company’s strengths and weaknesses to prepare sellers for any questions a potential buyer has. Sell-side due diligence aims to ensure that the owner deals with any weaknesses in a company that may reduce the profit, resulting in a higher maximum sale price.

Part of sell-side due diligence includes running a quality of earnings analysis, also known as QofE. Conducted by an independent accounting firm, a QofE can help determine a company’s value, as it is a good indicator of a company’s ability to generate cash flow. 

Running sell-side due diligence ensures that the seller will see the same numbers the buyer does and allows a smooth M&A experience by preparing the seller and their team for any questions or issues that potential buyers may discover.

Conclusion: Walk Me Through A Sell Side M&A Deal

The sell-side mergers and acquisitions process can be lengthy and overwhelming to navigate. Utilizing a sell-side advisory service such as Rogerson Business Services can help make this process much smoother for the seller. A successful sell-side M&A process, with proper due diligence, results in the seller obtaining the maximum profit from the sale.

Our hands-on approach and commitment to our client's success set us apart from other firms in the industry. If you consider selling your business, we would be honored to help you navigate the process and realize your goals.

If you have decided to value and then sell your lower middle market business now or within the next six to twelve months in California, click here to get started with this quick and simple form, or call Andrew Rogerson, Certified M&A Advisor, so we can understand your pain points better and prioritize your inquiry with Rogerson Business Services, RBS Advisors.

This is part of M&A Advisory tips to answer some frequently asked questions about Sell-Side M&A series ->