The exit process consists of personal considerations, lifestyle changes, transaction preparations and executing the actual transaction.
I have more than €8 billion worth of experience buying and selling companies. In this blog I describe the exit process step by step.
Owner readiness for an exit process
Transaction advisors often forget about the monumental ownership readiness process, prior to the actual exit process. It’s a tough decision. To sell the business is about family, status, fulfilments and what to do next.
Building a business is a lifestyle. The exit process is not only about selling the company but also to come to agreement with once private situation. Not least what your options are and what to do next.
Once the owner, or owners, have come to an agreement to sell, which may take years to agree, there is time to also agree on any special requirements.
Special requirements may include preferred buyer type, preferred transaction type, and how to deal with key employees.
Read more about owner preparations to sell a company.
Exit process preparations
It’s time to make a number of exit preparations once the decision to exit has been taken. These are:
- Value enhancing activities such as stepping up sales and filling the order book.
- Financial preparations such as reduce cost to boost EBITDA (last three years count).
- Mapping out the future with a Market Analysis, a 5-year Business Plan and Financial Projection.
- Key executive dependencies needs to be resolved including preparatory replacement recruitment for yourself, if you intend to sell the company and leave entirely.
- Due diligence preparation meaning you shall make a digital data room with all important documents. The data room shall include corporate documents, financial statements, contracts with all employes, key customers and supplier’s, amongst other.
Exit process preparations are sometimes referred to as dressing the bride. Nothing could be more wrong. It’s about preparing the company and its employees for the best possible business-life once you as a founder have left the business.
Read more about timing when selling a company.
Initial contact, the Teaser and the Information Memorandum
Once you have established a contact with a potential buyer you need a Teaser and Information Memorandum. These are two different presentations.
Often this is when transaction advisors come in and help you in your exit process. Handy, but not a necessity, you can make these presentations yourself.
- The Teaser is a 1 – 2 pages pdf-word document. Here you outline basic company information, what services you offer, key financials, your reason to exit, and draft transaction proposal.
- The Information Memorandum is often a 15-slide power point presentation. Basically, the same information as with the Teaser, but more details.
The teaser is what it says: You use it to follow up on initial contacts with potential buyers that you have identified and approached.
The Information Memorandum is a slightly more detailed document that you can us at a follow up meeting with a prospect that has expressed clear interest in a transaction. You sign Confidentiality Agreement before you present your Information Memorandum.
Your exit process first Indicative Offer
You need to establish if your list of key prospects are seriously interested in acquiring your company. You should do this by requesting an indicative offer before you proceed with any of your exit process step by step.
Of course, only once your initial discussions indicate a serious interest in your business.
The Indicative Offer is usually a 1 – 3 pages letter expressing interest in you company. The letter gives you a strong indication if there are common grounds for a possible transaction.
The Indicative Offer shall include:
- A share purchase and value indication.
- Any conditions precedent for a transaction (which is always the case).
- An indication how the potential buyer would finance a possible acquisition.
- An indication how the buyer would view your exit process step by step, including timing.
Based on the Indicative Offers you receive you can decide if you shall enter exclusive negotiations with any one or several potential buyers.
Remember that the indicative bid was a non-binding bid plenty of covenants and conditions precedent for a transaction. Nevertheless, it’s an important step in your exit process and help you determine who’s your hot lead might be.
Potential buyer negotiation and the final offer
Now it’s time to identify your likely buyer, your hot lead. This is when you start serious negotiations and request a final offer.
Your potential buyer will need more information to make his final offer for your company:
- You need to present your business plan in a management presentation for potential buyers.
- Potential buyers will evaluate key executives during the management presentation.
- You shall also present your market analysis during the management presentation.
The market analysis serves three purposes, and that is why you need a market analysis:
- This is a way for a buyer to compare notes. Does the company share his view on the market potential?
- You help your customer build his investment case, meaning he can justify an acquisition and a valuation.
- Quality check of your business plan.
Letter of Intent
Now it’s the time to carve out a Letter of Intent should the final offer be to your satisfaction. You negotiate key terms as part of understanding the final offer.
You sign a Letter of Intent once you and your potential buyer are in agreement on key terms and doing so you accept his final offer.
The Due Diligence process is an important exit process confirmation
Two parallel activities take place once the final offer is accepted; buyer due diligence and share purchase negotiation.
The due diligence is when the buyer has his advisor, usually an audit firm, go through all documents presented in your online data room of key documents.
A due diligence serves three purposes for the buyer:
- To confirm that what has been presented and said is accurate.
- A checks and balance that no server problems exist (e.g. environmental obligations).
- To find any loop wholes to use in the final negotiation of the share purchase agreement.
Read more about what due diligence areas to prepare.
Share Purchase Agreement and negotiation concludes your exit process
The Share Purchase Agreement is the agreement to sell your company and is based on the final offer and the Letter of Intent. Any odd discoveries from the Due Diligence may also impact the terms of the Share Purchase Agreement.
A good M&A lawyer is a great help drafting, negotiating and writing the final Share Purchase Agreement. Even the most seasoned M&A practitioner and VC investor familiar with Share Purchase Agreements use M&A lawyers to get everything correct.
Signing and closing
All that remains once all agreements are made is the signing and closing process. This ends your exit process and all its steps. Usually the signing is a fest celebrated with a well-deserved dinner.
It usually takes anything from two to six month to close a transaction, exchange payments etc. Should you need competition approval or financial supervisory approvals it may take even longer.
You shall also start to inform all stakeholders as soon as agreements are signed and the closing process starts. You inform the stakeholders pending final closing of your exit process.
Stakeholders include employees, key suppliers, key customers, prospects, etc.
So, this is the exit process step by step in most cases expect Initial Public Offerings, which has some alterations. Best of luck with your own exit process!