Pt 3: Selling a Business, Approaching Purchasers

In part 3 of our Selling a Business blog series, the sales process begins with the vendor's mergers and acquisitions advisor approaching prospective purchasers with an anonymous profile of the business, commonly referred to as a teaser. The prospects use the teaser to decide if they're interested in acquiring the business. If so:

• they enter into a confidentiality agreement with the vendor; and

• are then provided with an information memorandum and sales process letter that contains the key milestones and timings of the sales process.

Approaching Prospective Purchasers

Contacting prospective purchases can be quite time consuming, because the key person who assesses acquisitions for them, which is commonly the owner, CEO, CFO, or in-house M&A advisor, is often:

• travelling on business;

• on annual leave; or

• in the case of international parties, is difficult to contact because of a significant time zone difference.

Therefore, it is advisable to:

• Allow up to four weeks to make contact with and engage in constructive dialogue with prospective purchasers; and

• a further two to four weeks for prospects who are interested in the business to enter the confidentiality agreement, review the information memorandum and submit a non-binding indicative offer to acquire it.

The period of contacting prospective purchasers is an opportunity for the mergers and acquisitions advisor to:

• have discussions with each prospect to gauge how motivated they are to acquire the business; and.

• ensure the information memorandum contains all the information they reasonably require to value the business, in order to be able to submit a meaningful non-binding indicative offer.

The mergers and acquisitions advisor’s ability to build relationships with genuine prospects during this phase is critical for setting the tone for the rest of the sales process.

Unfortunately, the mergers and acquisitions advisor cannot usually persuade a prospect to be interested in the business, even where they have a pre-existing relationship with the prospect's owners, Board of Directors, CEO or CFO, because

• most prospects will view the opportunity through the lens of their acquisition strategy; and

• will therefore, will only be interested in entering into a confidentiality agreement to participate in the sales process if the opportunity fits their acquisition criteria.

Sales Process Letter Timeline

All prospects that enter into a confidentiality agreement will be sent a sales process letter along with the information memorandum. This will contain the following timeline:

• the date that non-binding indicative offers are due. Usually 6 to 8 weeks after the launch of the sales process.

• the period of time the due diligence data room will be made available for review by parties whose offers have been shortlisted for due diligence. Typically around 4 weeks.

• the days that site visits and meetings with the vendor will be held. Normally in the 1st two weeks of due diligence.

• the date the draft sale agreement will be added to the data room. Normally after the 2nd week of due diligence

• the date that final offers, including a mark of the sale agreement, are due for submission. Usually after the 4 week due diligence period and a total 10 to 12 weeks after the launch of the sales process.

• The period that final negotiations are expected to occur. This is potentially a further 1 to 4 weeks, following which the successful purchaser will be selected and the sale agreement entered into.

• The date that the transaction is expected to settled. The timing of this is is ultimately dependent on any conditions to completion in the sale agreement and the time required to satisfy them, which ultimately depends on the unique circumstances of each deal.

  • Agreements without any conditions can settle on the same day that the agreement is entered into; whereas

  • Agreements requiring customer, supplier, landlord, and/or government consents can take weeks and even months to complete.

Previous blogs in the Selling a Business series:

Pt 1: Process Overview

Pt 2: Planning Stage

Next blog in the Selling a Business series:

Pt 4: Indicative Offers Submitted

Pt 5: Purchaser Due Diligence