January 10
M&A Science Live - The Evolution of M&A Functions
November 3, 2022

There are many reasons why an owner sells their business. Before talking to an actual buyer, potential sellers need to prepare their business in order to maximize value. This is the first of a 2-part article of “Sell-Side Behind-the-Scenes'' where Frederic Lebourg, CEO & Managing Director at Redlands Farm Holding, Inc., discusses how to prepare a company for acquisition. 

"Most large companies don't want to buy something for what it is today. They want to buy for what it can be tomorrow." - Frederic Lebourg

The Decision to Sell

Most people would like to think there is a right time to sell a business. However, according to Frederic, acquisitions are driven mainly by circumstances such as the owner needs money, the specific company no longer fits in the portfolio, or the acquisition is part of a larger strategy. Deciding to sell a business is primarily because of a need. Preparing the company to make the sale more attractive, while preserving value, should be the number one priority before finding a buyer. 

Going to Market

Before going to market, making the company more attractive to buyers is imperative. Do this by drafting an investment thesis for the buyers that explains how the company can amplify the business' ability to grow. Then, come up with a compelling projection to entice buyers to buy the business. 

Also, sellers selling small businesses should avoid using investment banks. Since investment banks’ fee is based on percentage, they often do not prioritize small transactions. Instead, talk to the buyers directly.

Lastly, do not pursue one deal at a time. Talk to multiple buyers to gain leverage in the deal. Sellers should seek to dictate the terms of the transaction.

"If you let the buyer guide you, you will always be in a defensive position where you have to push back." - Frederic Lebourg

Steps to selling the business

1. Prepare for Due diligence

An intention to sell does not stop the business operation, so prepare in advance and start building a due diligence folder on your computer. Also, being unprepared will look unprofessional and might hurt the credibility and attractiveness of the business from the buyer's perspective.

2. Have multiple products ready for launch

Most acquirers will pay more for potential rather than historical performance. Buyers always assume that they could do better than the target company. Have the product development prepare multiple products that the buyer could launch themselves. Buyers will be willing to pay more for a business if they are shown the potential of future product lines.

3. Prepare the Team

Talk to investment bankers and tax attorneys in advance. Be knowledgeable of the process and start preparation before the sale process even begins. 

4. Understand the vision of the deal

Set the tone early-on in the deal. Sellers should never relinquish control and let the buyer dictate everything in the sale process. Instead, sellers must determine the deal structure they want from the beginning. 

5. Get Internal Alignment

Selling a business with the help of an internal team makes the whole process easier. Employees play a huge role in due diligence document collection, such as financial and HR-related information. The seller must communicate the deal in a positive light and gain the support of everyone inside the company. 

6. Identify outside actors who have leverage on the deal

In some instances, outside parties can hold the deal hostage, such as landlords who will not allow lease transfer. Therefore, getting the approval of certain outside parties early-on is best before talking to any potential buyer. The above recommendation also applies to lawsuits or any other secrets that the company may have. Work with lawyers and iron any potential issues out, as buyers will eventually discover them during due diligence.

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