Sell Side M&A Process How It Works, Strategies, and FAQs

Navigating a business sale from start to finish is a complicated process that gets even trickier if you focus more on your potential buyers and forget to turn the lens on your business in the first place. 

Since you only have one chance to get the sale right, it is crucial to conduct a thorough and effective sell-side M&A process. 

In this article, we'll learn how the sell side M&A process works and the strategies you can use to ensure a smooth, successful sale. 

One notable aspect is that the entire process requires top-notch experts like investment bankers to guide you through everything. 

At Exitwise, we can help you hire the best M&A experts to help you with the sell side process. Reach out to us today to hire and manage your dream M&A team for a smooth sale with the highest possible sale price. 

What is Sell Side M&A?

Sell side M&A is the process by which you sell your business when you want to exit the market. 

It's basically how the deal process looks from your perspective as the seller or business owner and your M&A team. 

The sell side experts typically represent investment banks or advisory firms that sell a company or business on your behalf. The team comprehensively analyses your company, its financial health, and its operating market. 

The experts then work closely with you to develop a detailed strategy for marketing and selling the company to prospective buyers. 

4 Benefits of Sell Side M&A

You can enjoy the following benefits from the M&A sell side process:

1. You Have More Control of the Sale: The process allows you to set the sale terms and conditions and choose the most favorable purchase offer. Such control is desirable if you seek a maximum return on investment or want to exit the business as quickly as possible. 

2. You can Unearth Risks to the Sale: The process can help you discover otherwise unknown potential risks to the sale and allow you time to address them before they tank the deal. You can even turn them into positives that enhance the sale. 

3. Maximizing Value: The comprehensive analysis by experts uncovers the true value of your business and identifies areas where you can improve to raise its value. 

4. Maintaining Confidentiality: When you sell a business yourself, you may prematurely share sensitive information, jeopardizing the sale. Working with M&A experts saves you the trouble because they know how to preserve your anonymity in the early stages of the deal. 

How Does Sell-Side M&A Work?

Experts in the sell-side process make buyers or investors buy stocks, assets, or entire companies by acting as intermediaries between you and prospective buyers. 

Here’s how the process works:

• Typically, the sell side transaction begins when you receive an unsolicited offer or decide to sell your business.

• Once you receive the unsolicited offer, you can choose to negotiate exclusively with the buyer. You may also opt to take more control by hiring an investment banker to execute an auction. 

• Investment bankers prepare a comprehensive M&A plan for the transaction, which they share with you. 

Next, we'll examine the different M&A auctions and the stages involved in the auction model to understand how the sell-side process works. 

What are the Different M&A Auction Processes?

Your investment banker can choose from a broad auction, limited auction, or even a targeted auction approach based on your specific needs.

Here's how the three auction types stack up against each other:

Let's now check out the essential steps investment bankers follow under the M&A auction model. 

5 Key Steps in the Sell Side M&A Process

The typical M&A sell side process follows the stages below:

1. Preparation for the Sale

Preparing your business for sale involves steps such as:

• Preparing your financial statements and other documents to streamline the process.

• Building a team of M&A experts, including investment bankers, accountants, lawyers, and business brokers. 

• The investment banker prepares documents such as the teaser and a Confidential Information Memorandum. 

• The legal team drafts a Non-disclosure Agreement to protect sensitive information. 

• Identifying and qualifying potential buyers.

2. Valuing the Business

Valuing your company determines its fair market value and involves collecting financial information such as past tax records and financial statements. 

Valuation also involves selecting valuation methods, such as discounted cash flow and transaction multiples. Using a combination of different methods is advisable for a better valuation. 

3. Effective Due Diligence 

The steps below are crucial during due diligence:

• Evaluating bids from interested buyers. You work with the M&A team to analyze the offers based on the suggested purchase price, buyer credibility, and strategic fit. 

• Organizing and managing a virtual data room to act as the online repository for all the relevant documents. 

• Attending management meetings to present the opportunity and answer buyers' questions. 

4. Negotiations with Buyers

At this stage, the M&A team shortlists buyers based on their non-binding offers, which show their buying interest and the terms they propose. 

The team also negotiates the deal terms and structure, the proposed purchase price, and the terms of payment with the shortlisted buyers.

5. Closing and Executing the Transaction

Once you select the winning bidder, the M&A lawyers draft a sale and purchase agreement to outline the terms of the sale. 

The sell-side M&A experts may help the buyer execute the transition and integration plan by sharing their knowledge and assisting with employee onboarding. 

Selling your company or business is quite challenging. At Exitwise, we help you hire and work with your dream M&A team to sell your business at the highest valuation possible. Connect with us today.

What Role Do Advisors Play in the Sell Side M&A Process?

The primary role of the sell side M&A advisory team is to execute the deals they receive from you, either as a company or an individual business owner.

Their main objective is to sell your business or company at the highest possible price. Since it takes a whole team to make the sale, the activities of different advisors may overlap. 

The sell side M&A transaction largely features the work of the investment banker, who may undertake roles and activities such as:

• Preparing the Business for Sale: They help you check your financial and overall business health.

• Marketing the Business: They also prepare the presentation for attracting potential buyers.

• Handling Documentation: The banker prepares documents such as the teaser and Confidentiality Information Memorandum. They also negotiate NDA clauses in conjunction with the M&A lawyers. 

Your banker also receives the letters of intent and binding offers and signs definitive agreements. 

• Conducting Meetings: The banker meets and works with potential buyers to manage the sale from start to finish. 

• Assisting With Closing the Sale: Depending on your agreement, the banker can help you close the sale and even manage the post-sale integration. 

Challenges in the Sell Side M&A Process

The sell side M&A process isn't easy, and knowing the potential challenges is a good way to learn how to navigate them when they arise. 

Here are some you may face: 

• It's difficult to identify the best time to sell and to get emotionally and psychologically ready to let go of your business.

• Sensitive information may leak and harm your position in the market if you are asked to disclose too early into the process. 

• Reverse due diligence can be complicated, expensive, and time-consuming. Your business's performance may degrade if you must participate in due diligence while still running the business. 

• As a seller, you may have weaker negotiating power than the buyer, who may be eyeing other target companies. 

• It's challenging to gather transparent, adequate, and relevant data, especially in a private market. 

• Post-sale integrations aren't always smooth. 

Frequently Asked Questions (FAQs)

Here are some FAQs on the sell side transaction process:

How Long Does the Sell Side M&A Process Take?

The M&A sell side timeline can be a few months to a year and even more, depending on prevailing market conditions, how well-prepared you are as the seller, and how complex the deal is. 

What are the Essential Documents for Sell Side M&A?

The following documents are essential during the M&A sell side process:

• Teaser, which markets your business using a detailed, high-level overview while still keeping your identity anonymous. 

• List of prospective buyers

• Non-disclosure Agreement 

• Confidential Information Memorandum 

• Definitive Purchase Agreement or Sale and Purchase Agreement

• Due diligence checklist

• Letters of intent, non-binding offers, and binding offers

• Financial due diligence report, which may include audited financial documents such as quality of earnings report, balance sheet, working capital, list of assets and liabilities, cash flows, and income statement. 

Since gathering and processing these documents can be challenging, you can enlist the help of various M&A experts. We can help you find, hire, and manage a team to work with you in preparing the documents, among other activities. 

What are the Tax Implications of Sell Side M&A for Businesses?

Your tax liability as a business seller depends on various factors, such as your state and how you structure the deal. You might be liable for capital gains tax and federal income tax. 

When selling a company, you should prefer a stock sale rather than an asset sale to avoid double taxation and enjoy long-term capital gains tax rates. 

What are Some Alternative Exit Strategies if Sell Side M&A is not Feasible?

Here are some exit strategies to use if sell side M&A isn't an option:

• If you have a profitable company, you can find ready buyers.

• Sell your stake to an investor or partner 

• Management buyout (MBO)

• Sell to your employees (with ESOP)

• Transfer to a willing and capable family member.

Conclusion

Getting a business sale right takes a lot of effort from the owner and every stakeholder in the sell side M&A process. 

You'll want to work only with the best experts, and we at Exitwise can help you recruit and manage your dream team of M&A professionals. 

Connect with us today to hire the right team for a smoother M&A process that ends in a successful sale.