Protecting your company's value during a sale

The balance of power is key to the sale of your business. If your company is attractive and you have several potential buyers, you hold the leverage right up until you engage in a Heads of Terms agreement - or letter of intent - with one of the parties.

But what then? The balance of power has swung into the buyer's favour, and their processes could take months to complete. You will almost certainly be bound into a period of exclusivity that will preclude you from negotiating with other interested parties. You also want to make sure, however, that if a deal does fall through, your business's reputation and viability remain at the same high standard as before.

Protecting your business through the course of the sale can be a difficult task, but a few key points of prior preparation can ensure that the deal does not become diluted by the buyer's demands and maintains its normal operation’s survival through the negotiating and due diligence period.

Prior to the sale process beginning, a review of all of your clients' contracts is imperative. If you can - if your clients are willing - try to have them sign new, standardised contracts that specifically spell out that the conditions and obligations of the contract remain in place throughout a change of ownership, if indeed such contracts are not already in place.

Both during the exclusivity period and beyond into the next phase, you should ensure that customer service is not adversely affected in any way. Many medium and larger companies temporarily restructure senior management so that an entirely separate team runs the sale process.

All the while, keep all senior management team informed about what is going on, right from the start. Hold an early meeting to ensure that they are all ‘singing from the same hymn sheet’ on company strategy and policy.

'Isolation interviews' are a common part of due diligence, where buyers question your management either alone or in small groups. Dissent among the ranks or blurred boundaries can put a buyer off. Establishing a level and contented playing field among senior staff can only aid your company's profile, and is a process that you would do well to begin the moment you first consider selling your business.

A contented and co-operative staff will also help speed up the due diligence process and curry further goodwill and favour on the buyer's side of the deal.

Another provision to have in place before the establishing of the Heads of Terms agreement is a bank of client referrals. Why do your satisfied customers choose to work with you over your competitors? As happy customers, if you ask them, they are likely to be only too willing to put their reasons down on paper, in documents that may be used for the deal in process or any future transaction.

Due diligence on your company should not commence before a price and terms are agreed but, when they are, the buyer and their advisers will want to spend some time at your premises analysing original documentation. Having this - and all of your financials - in perfect order will serve to strengthen your position and the ongoing process. If it’s a division being sold, have separated management accounts available. If you make sure your books have been audited by a recognisable and accredited auditor, your buyer's confidence will be boosted and the transaction will have a higher chance of succeeding. See here a for a comprehensive description of a Heads of Terms agreement, together with a sample template.

Share this article

Latest Businesses for Sale

View more businesses for sale