Two years ago, I was working late almost every evening and through the weekends preparing our company for acquisition. Many documents needed collecting and uploading to the data room. Others were written to justify the investment proposition. We were grilled on all of this through hours of management interviews and hundreds of written questions. Not being allowed to tell most of our team focussed the pressure on just a few of us.
Preparing for exit by trade sale can be one of the most intense professional experiences you’re likely to have. If you’re lucky enough to get to this stage, you can make it easier by getting ready early. Broadly speaking, due diligence divides into legal, financial and commercial areas. You can save yourself a lot of trouble by anticipating the likely questions and organising your data accordingly.
Legal materials obviously include any company agreements with other firms or employees, and associated intellectual property. Contracts can also be formed implicitly – emails containing discussions on pricing or compensation should also be filed carefully. Anything agreed under international jurisdictions may need more attention. If you’re not sure of a document’s legal significance, then get advice. Finding a friendly lawyer to help you through this process can make a huge difference.
Financial information needs to be accountable to relevant business areas. Revenue should be reconciled with orders, invoices, and associated costs. Payments forming part of larger transactions may need particular attention. Balance sheets, P&L and Cashflow need to demonstrate good governance and consistent reporting. Business plans should combine your historic and projected sales into a coherent and realistic growth story – any bumps in the road need to be carefully explained. The role of your Finance team is crucial here.
Commercial information should anonymise customers, while showing their markets, value to your business and why they buy from you. Newer products contributing additional exit value will receive special attention. Competitive positioning of each product in its market is key to communicating their value, including Unique Selling Points and relevant intellectual property.
Your team’s talent is key to all of this, but harder to nail down. You may need to summarise their skills, experience and qualifications while maintaining confidentiality and GDPR compliance.
If this sounds like a lot to keep track of, then you’re starting to understand the size of the task! Any error or inconsistency in these documents can erode your company’s evaluation. It’s not surprising that M&A can ruin your sleep in the pursuit of a successful deal, but the destination can be well worth the journey!
Please get in touch if you’d like to know how to prepare your business and yourself for an exit.
(Written February 2024)