The business sale process has a number of distinct stages and typically takes 6 to 10 months to complete.
There are strategic and financial buyers. The best buyer is the one that benefits the most from the purchase.
A business's value is determined by market comparables as well as business specific analysis.
Why is the Letter of Intent (LOI) so important? Because, in the context of a sale process, it marks the critical point where power shifts from the seller to the buyer. What I mean by this is that an LOI typically includes a term requiring exclusivity. Exclusivity requires the seller to stop engaging with other…
How long does it take to sell a business? Milestones in the business sale process are outlined in the following chart. Milestone Timeframe Preparation of the marketing materials (by the advisor in concert with the seller) and due diligence materials (by the seller, guided by advisor). The documentation including a teaser,…
Whether a transaction is defined as a merger or an acquisition is determined by a number of accounting tests. Simply put, both parties in a merger need to meet a number of equality tests and, when met, transactions classified this way can be more tax efficient. Because of the strict rules that apply here, most…
There have been numerous studies on the difficulties of successfully completing acquisitions. Some studies suggest that the majority of all acquisitions fail. We won’t debate what is a success or failure, and over what time frame it should be measured here but what we will do is review four leading Canadian software companies and examine their…
Revenue quality is an area of focus for buyers and venture capital/private equity investors. High revenue quality companies are valued higher than low quality revenue companies. But what does this really mean and why is this? It is simply a question of risk. High quality revenues reduce risk and therefore result in a higher valuation. What…
A Confidential Information Memorandum, or a CIM, is the main overview document provided in the private company sale or private equity financing process. A CIM is made available subsequent to signing an NDA and presents detailed company information as a basis for an indicative value discussion. The CIM is typically prepared by the adviser and…
The Purchase and Sale Agreement (PSA or SPA in the case of a Share Purchase Agreement) is one document in a set of final documents that completes a company sale transaction. Other documents typically include employment agreements, escrow agreements, non-competition agreements, releases, schedules and more depending on the type of transaction being contemplated. Importance of…
How do you select the best possible buyer for your business? There are many criteria to consider but two key ones are an ability to pay and an interest in paying a premium. Assessing the ability to pay for private companies is not as straightforward as it is for public companies, which have to disclose their…
Five examples of acquirers paying a premium. What are buyers looking for in acquisition targets? The objective of an acquisition is to create value. This is accomplished by improving profitability and/or reducing risk; both enhance earnings quality and drive value. More specifically, acquisition objectives can include achieving economies of scale or economies of scope, vertical…
Private vs public company valuations; why are they different? For public companies trading on a stock market such as the NYSE, analysts express the value of a company as a multiple of earnings. It is called the price-earnings ratio or PE ratio. If the price of a stock is trading at a low multiple (say six…
Business goodwill transferability is critical for a successful business sale. In many cases, small businesses rely on key management; typically the founder and CEO. The founder and CEO will have developed the IP, maintain trade secrets in his/her head, manage client relationships and sometimes relies on personal trust as opposed to written contracts in client…
The due diligence process is an investigation of a business or person prior to signing a contract. More specific to a business sale, business due diligence is the process of verifying the representations made in the CIM and other marketing materials provided to the potential acquirer by the seller. For example, in a CIM it…
