Selling a company – how to prepare for an M&A transaction
A successful business sale takes more than a sale agreement. Prepare the company and manage the transaction from first discussions through completion.
Selling a company is often one of an entrepreneur's biggest financial decisions. A successful outcome takes more than a sale agreement: the company needs preparing, its value must be understood realistically, and the process managed from the first discussions to completion.
Transaction timetables vary greatly. Starting early generally gives the seller more scope to improve sale readiness, shape the structure and strengthen their negotiating position.
1. Clarify your own objectives first
Before seeking buyers, decide what you want. Do you intend to:
- sell the whole company or only part of it;
- remain as an entrepreneur or manager afterwards;
- find a trade buyer, investor or the existing management as successor;
- maximise price or prioritise continuity; or
- complete quickly or prepare for sale over a longer period?
The answers shape which buyers to approach and how to run the process.
2. Get the company ready for sale
There is no benefit in artificially dressing up the business just before a sale, but genuine improvement opportunities should be identified early. A buyer will assess profitability, customer concentration, staff, contracts, investment needs, working capital and dependence on the current owner.
Preparation may include:
- making financial reporting clearer;
- identifying one-off costs and owner-related items;
- assembling contracts and documentation;
- reducing dependence on particular customers and suppliers;
- retaining key staff; and
- resolving outstanding legal or tax questions.
3. Valuation provides a basis for expectations
Buyer and seller often see value differently. Company valuation is not about finding one absolutely correct number; it builds a reasoned view of value and its key drivers. For an SME, methods may consider adjusted profit or EBITDA, cash flow, asset-based value and comparable transactions.
Enterprise value must also be distinguished from equity value. Interest-bearing debt and surplus cash affect the eventual share price. See the worked example in how a company is valued.
4. Identify buyers and begin discussions
Once sale materials and valuation are sufficiently developed, potential buyers can be identified. A strategic buyer may focus on synergies and market position; an investor may emphasise cash flow, management, growth and a later exit. Confidentiality is important. A non-disclosure agreement is typically used before detailed information is shared.
5. Letter of intent and key terms
When both sides are sufficiently aligned, they may agree to continue through a letter of intent or other preliminary agreement. Consider:
- the indicative price or pricing mechanism;
- transaction structure;
- any earn-out;
- financing terms;
- exclusivity;
- the scope of due diligence; and
- the target timetable.
6. Due diligence – checking what is being bought
In due diligence the buyer reviews the target in greater depth. Its scope depends on the transaction and may include financial, tax, legal, commercial and technical work. Financial due diligence considers, among other things, quality of earnings, working capital, debt, forecasts and unusual items. A well-prepared data room speeds things up for the seller and reduces late surprises.
7. Agreement and completion
The final sale agreement records the terms in detail. Beyond pricing, these may cover seller warranties, limitations of liability, potential indemnities and non-compete provisions. They depend on the transaction, so a legal adviser is an important member of the team. Legal agreements are handled with the client's lawyer or, where appropriate, JTT's law-firm partner. The approach is agreed case by case.
Why use an external M&A adviser?
A business sale is personal to an entrepreneur. An external adviser provides structure, a comparative perspective and distance in negotiations. JTT can help with valuation, sale preparation, analysis of financial information, identifying buyers, negotiations, financing alternatives and due diligence.
Antti Pekkarinen leads JTT's corporate transactions service. An initial conversation is confidential and non-binding. Explore our M&A advisory service.
