Selling Your Business with The Exit Group: A Step-by-Step Guide

Selling your business for the first time can be a complex and overwhelming process. At The Exit Group, we believe in breaking down the barriers and providing a clear roadmap for business owners. In this article, we’ll walk you through the typical M&A timeline, ensuring you know exactly what to expect from selling your business alongside a third-party facilitator.

 

Navigating Your M&A Journey

Before we review the typical stages of an M&A transaction, it’s important to note that whilst any preliminary conversations aren’t included in the approximate M&A timeline, we do recommend reaching out to an advisory firm as early as possible. That means long before you’ve made the decision that you’d like to sell your business. 

This helps you as an owner to stay in the driver’s seat of your business. You’re able to build and foster your business in a way that supports a fruitful sale, and equally, align your sale with optimal market conditions, buyer interest, and more. 

Now, let’s assume that you’ve been in conversations with our team at The Exit Group for some time, and it’s an optimal time, both personally and professionally to sell. What’s more, a private equity firm has expressed interest in your business. Here’s where the M&A transaction truly begins. 

 

Initial Conversation with Private Equity (PE) Firm

In this early exchange, you should not only share your goals and expectations for the deal, but also assess if there’s a cultural and strategic fit between your business and the PE firm. 

It’s a bit like a first date where  you’re feeling each other out, trying to understand if you’re on the same page and if you can see a future together. This conversation sets the tone for the entire M&A process, and it’s crucial to ensure that both parties are aligned in their vision and objectives.

 

NDA and Data Request (1-3 weeks)

This stage is all about safeguarding your company’s confidential information while simultaneously satisfying the PE firm’s need for data to conduct their due diligence. The NDA serves as a legal shield, ensuring that the sensitive details of your business are kept confidential throughout the process. There are different perspectives on NDAs. They are no doubt useful and should be signed prior to disclosing data. While NDAs protect you, it should be mentioned that the vast majority of buyers are simply trying to review data for their firm to minimize risk for their investors. There is not typically a malicious attempt to steal information on products or customers. The key is to trust the group and their intent with or without an NDA.

The PE firm will likely present you with a list of data and documents they require to assess the investment opportunity thoroughly. It’s a crucial juncture where trust and transparency are established, in order to shape the future of your potential partnership. The timing for this step is dependent on how fast you are able to turn around the request list as well as how difficult the requests are to fulfill. This phase of the process is typically designed to give the potential investor a feel for the business and operations. If there are items that are time consuming they may be skipped for now. Most of this request should be “off the shelf” and allow investors to determine interest level.

 

Follow-up Call to Review Information (1 week later)

This call is a pivotal point that provides an opportunity to address any questions or clarifications the PE firm may have regarding the information you’ve shared. It’s a bit like a follow-up meeting after a promising first date, where you’re both interested enough to keep the conversation going but need more details to move forward.  Oftentimes an investor will put a few slides together outlining the data received.  They will also highlight the questions they have regarding the data shared.  Sometimes there may be additional documents requested and clarifying questions asked on the follow up call.

This phase is critical, again, for building trust and ensuring that both parties have a comprehensive understanding of the deal’s potential and intricacies. It’s all about fine-tuning the strategy for a successful, mutually-beneficial transaction.

 

Site Visit (2 weeks later)

 This phase goes beyond discussions and presentations— it allows the PE firm to physically immerse themselves in your operations and facilities. It’s akin to inviting someone into your home to get a firsthand look at your day-to-day operations. 

This step provides the PE firm with valuable insights into the intricacies of your business, the quality of your assets, and the overall operational efficiency. It’s an opportunity to showcase your strengths and address any potential concerns, making it a critical juncture for building confidence in the deal.

 

Letter of Intent (LOI) (1 week later)

The LOI acts as a preliminary agreement: it formally declares interest in the deal, and outlines basic terms and conditions. It provides a roadmap for more detailed negotiations to come. 

You can think of it like planning a wedding: the LOI is your engagement, where you commit to moving forward, knowing that there’s time and space to work out the finer details. It’s a critical document that sets the stage for the due diligence process and eventual deal closure, and it’s vital that both parties are in agreement on its contents before proceeding further.

 

Call to Discuss LOI and Terms (1 week later)

Now’s the time for both parties to dive deeper into the specifics of the proposed transaction. It’s a moment to clarify any ambiguities, seek clarification on terms, and address any questions or concerns that may have arisen since the LOI was initially presented. 

This call is an important checkpoint where both sides ensure that their expectations are well-aligned and that they are moving forward with a clear understanding of the deal’s structure and implications. It’s a pivotal moment that can significantly influence the course of the deal. At this point you will want to engage and seek guidance from an M&A attorney to assist in these discussions. That way you will have someone in your corner to negotiate the deal specifics and terms that may be unfamiliar. 

 

Negotiations on Offer (1 week later)

Of course, after opening the platform for greater discussion comes negotiation. Both parties will engage in thorough and often complex conversations to fine-tune and ultimately solidify the terms of the offer. This stage requires careful attention to detail, effective communication, and a willingness from both sides to find common ground. As a buy-side middle market firm with a strong understanding of how both parties operate, we play a significant role in facilitating these tough conversations in order to nurture a positive outcome. 

 

LOI Signed (1 week later)

The LOI outlines the updated terms and conditions of the deal and signifies the formal intent to move forward with the transaction. Granted you’re not “married” yet, this is a major moment that paves the way for due diligence and the final stages of the M&A process.

 

From LOI to Close: The Next 90 Days

 

Once the LOI is inked, we’re on a structured timeline toward the big closing day, with approximately 5-7 days between each of the following phases: 

 

  • Execution of LOI: This marks the beginning of a 60-90 day exclusivity period, during which both parties commit not to engage with other potential buyers.
  • Introductory Calls with Diligence Firms: These calls kickstart the due diligence process, involving a thorough examination of your business. 
  • Data Collection: The third party diligence firms will request endless amount of data at this phase. This is the most time consuming part of a transaction but necessary in all private equity due diligence info about your finances, legal details, HR, and more. 
  • Meetings: Here, it’s all about crunching numbers with accounting and tax experts to make sure everything’s financially sound.
  • Legal and Third-Party Diligence: More due diligence, this time diving into legal assessment to ensure there are no hidden surprises. 
  • Site Visit and Planning Session: This is the “boots on the ground” phase, where both parties meet again. We roll up our sleeves and finalize the game plan. 
  • Delivery of First Draft of PA (Purchase Agreement) and Employment Agreements: The lawyers get to work crafting the legal documents for a thorough review.  The PA will have many iterations and require quite a few drafts back and forth from your attorney as well as the buyer.  Once this is agreed to and executed the transaction is essentially complete
  • Target Completion of Diligence Reports: All those third-party diligence reports should be wrapped up by this point.
  • Finalization of Agreements: We’re putting the finishing touches on the agreements and schedules to make sure everything’s watertight.
  • Target Sign and Close: This is when we’re on track for the sign-off and closure of the deal. 
  • Actual Close Date: The transaction is officially closed on this date, typically 2-3 weeks after the target sign date.

 

 

Conclusion 

 

As much as there are predictable phases to every transaction, no two deals are the same — hence the importance of working alongside an advisory firm to ensure you set yourself and your business up for utmost success. 

If you’re considering selling your business, or have questions about the process, don’t hesitate to reach out to us. The Exit Group is here to be your trusted partner from A-Z, to ensure you always Know Your Next Move. 

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