When we began our series on selling a closely-held business, we discussed various strategies for getting your business ready to sell (read it here).
That, in fact, is the start of your due diligence process – but the process is, to a great extent, an ongoing one over the sales negotiations. Still, it’s best to start out thinking about what your potential buyers will want to see, and what you can do to prepare your business for the buyer’s due diligence process.
This is another reason to choose your Transaction Advisory Team wisely – and at the start of your own process. To recap, you will likely want your Transaction Advisory Team to include:
Prior to committing to any buyer, or offer, you should have your Transaction Advisory Team ensure that:
Your Transaction Advisory Team can remedy many such deficiencies prior to any potential buyer taking a first look at your records, which will result in a buyer’s having greater respect for you and your business than if they had found the deficiencies in the course of their own due diligence. Involving your team helps them prepare for drafting transaction documents, including any necessary representations, warranties, covenants and indemnifications.
Good corporate housekeeping helps you to present your business in its most flattering light. Prior planning prevents poor performance.
It also makes it harder for potential buyers to discount your business’ value at a later date.
The Data Room
You will, most likely, want a virtual data room – a place where you can share documentation with your potential buyers for use during the buyer’s due diligence. Unless there is a particular reason for a physical data room, a virtual version will usually be the most convenient for both you and your potential buyer(s).
So, what documentation should you prepare to populate your data room? Some things you’ll want to include:
The other part of your due diligence is investigating the prospective buyer – the same data room can be used for the documentation you request. You may want to include:
The above is not a comprehensive list for either the buyer’s or your own due diligence documentational needs, as each business is unique, and we strongly recommend that your Transaction Advisory Team be enlisted to guide you as to what documentation should be copied to your data room.
In addition, any prospective buyer will have his/her own list of what documentation they want to see – please have your Transaction Advisory Team vet the list of requests before taking action to comply. A prospective buyer may want to see things they shouldn’t or items that are not necessary to effect a transaction. Your Team will be able to tell you whether a request is appropriate.
Indeed, it’s advisable for the Transaction Advisory Teams of seller and prospective buyer to handle as much of the due diligence negotiation as possible. They’re your experts and relying on them can both spare you headaches and free your time up to deal with things they cannot take care of for you, related – or not – to the sale.
If you are considering a potential sale of your business, I recommend strongly that you consult with us before making any major decisions – and the sooner the better, as the process of selling a closely-held business can take six months to a year, and sometimes longer.
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Until next time –