How We Sell Your Business

Getting to know each other
Step 1 - Prepare the Business for Sale
Step 2 - Create a Market to Sell the Business
Step 3 - Close the Deal

Getting to know each other

You are our employer, so its best we get to know one another to be sure the chemistry is right.  If we can determine the sustainable value proposition of your business, we can sell your business for maximum value on terms and exit timing to your satisfaction. If we're in agreement of the value proposition and we are both comfortable working with each other; we will have the basis upon which we can enter into a Business Marketing Agreement. For a full copy of the Business Marketing Services Overview, download here.

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Step 1 - Prepare the Business for Sale

Opinion of Value Analysis
Sequoia will conduct an Opinion of Value Analysis of your business. The Opinion of Value is not an appraisal or valuation of the business; instead, it is an opinion of the most probable selling price of the business via an arm’s length transaction under current open market conditions and will use the following proven methodologies:

Iterative Discounted Cash Flow (IDCF) Analysis
IDCF is a rigorous and comprehensive methodology that optimizes the maximum price of the business to the seller subject to achieving the buyer’s financial return objectives. Value to a buyer is quantified by the true cash flow generated over an investment time horizon after satisfying the cash requirements of the five claim holders to the business cash flow: a) the Seller, b) the Buyer, c) the Business, d) the Lenders, and e) the Tax Authority. Determining the buyer’s true cash flow requires knowing the buyer’s post-acquisition capital structure, but the buyer’s post-acquisition capital structure cannot be known until one knows the business value; and one does not know the business value until one knows the buyer’s actual cash flow.

This circular problem is solved through an IDCF analysis. An IDCF analysis repeatedly calculates complete pro-forma financials (fully projected Income Statements, Statements of Change in Cash Position, and Balance Sheets) until a value and a capital structure are found that satisfy the objectives of the seller and the buyer.

Capitalized Earnings Approach
The Capitalized Earnings Approach seeks to determine the selling price of a business by capitalizing its normalized cash flow as a function of the Cost of Equity of the business. Such analysis involves: (1) determining the adjusted EBITDA of the business over a multiyear period; (2) determining the cost of equity through consideration of industry coefficients for Competition, Risk, Profit Trend, Location & Facilities, Marketability, Industry Trends, Ease of Replication, Barriers to Entry and the like; and (3) computing the most probable selling price of the target business based on the product of the above.

Custom Selling Documents
Sequoia will conduct guided interviews with you (and any designates of yours which have been made aware of the impending sale of the business) to discuss strategies, policies, and procedures of the business such as: competition, marketing, sales, distribution, customers, territories, administration, manufacturing, customer service, human resources, financial matters, information technology and security, process control, intellectual property and the like.  The pool of information gathered enables us to prepare four essential selling documents before taking the business to market: (1) the Anonymous Business Profile, (2) the Confidential Business Presentation; (3) the Confidential Information Memorandum; and (4) the Confidential Price Analysis. 

Anonymous Business Profile (ABP)
The ABP or “teaser” is a one-page data sheet used in the early stages of buyer contact.  It highlights the fundamentals of your company and sells the benefits of your company’s unique characteristics to buyers without identifying your company name, location, or other company characteristics that you deem confidential.

Confidential Business Presentation
Prospective buyers are delivered an in-person sales pitch on the company. The centre piece is a comprehensive electronic presentation about the business tailored for the audience to which it is presented. The presentation is based on the content of the Confidential Information Memorandum (see below) adapted for an in-person sales presentation. It is provided only to parties that have been qualified and have signed a nondisclosure agreement.

Confidential Information Memorandum (CIM)
The CIM is an individual expression of the unique characteristics of your company.  It is provided only to parties that have been qualified, signed a nondisclosure agreement, and have been approved by you prior to being sent.  The focus is the benefit of your business to buyers.  The goal is to engage the buyer in further discussions about your business in the context of combined resources (merged operations, new capital investment, etc.) with the buyer.  Whereas it discloses financial information of your company, it is not exhaustive.  Details are deferred until due diligence; after commitment has been made by the buyer to acquire your company.

Confidential Price Analysis
The Confidential Price Analysis is a paper that defends the value of your business to the buyer and the buyer’s influencers and advisers. Once a buyer has committed to purchase your company, they inevitably question the amount they are required to pay for the business. The purpose of the Confidential Price Analysis is to deal with the objection in a straightforward manner that is rooted in sound financial analysis. Using the techniques contained in the Opinion of Value Analysis (i.e. Iterative Discounted Cash Flow Analysis and Capitalized Earnings Approach), the Confidential Price Analysis defends the value of the business based on scientific fundamentals. Furthermore, once a Letter of Intent has been mutually accepted, the buyer’s advisors (accountant, lawyer, etc.) are naturally predisposed to claim the price offered is not justified. The Confidential Price Analysis has been proven as an effective document to remove further price objections and maintain the value offered for the company.

Electronic Data Room
Sequoia will compile information about your company to prepare an electronic data room. The data room anticipates all information a buyer will likely require during due diligence to validate the legal and financial condition of the company, its properties and assets, and other matters to satisfy itself of the feasibility of the proposed transaction. After a Letter of Intent (LOI) has been mutually accepted, the electronic data room is posted to a secure authenticated web site to enable select, time-limited access by the buyer and the buyer’s advisors engaged in due diligence (typically lawyers and accountants). Preparing the electronic data room before LOI acceptance and distributing it electronically after LOI acceptance ensures deal momentum is preserved.

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Step 2 - Create a Market to Sell the Business

Buyer Competition is the Most Important Factor
Whenever you generate competition for something you possess, that possession increases in value. Creating a market to foster buyer competition is the most effective way to maximize your company’s value in terms of:

• Price
  Many things affect price, but none as great as creating a market of buyers.
• Speed
  Nothing motivates buyers to get the deal done more than knowledge of competing offers.
• Terms
  Cash at closing, vendor financing, target working capital, holdbacks, transition support, exit timing, warranties, etc. are all influenced by competition more than anything else.

Confidentially exposing your business to as many qualified buyers as possible dramatically increases our negotiating leverage in the sale of your business. This is one of the most critical factors in selling your business in a timely manner for the highest price on the best terms.

Identify Prospective Buyers
Identifying the maximum number of qualified buyers is key. The most probable buyer does not fall into a single category or profile. Who is most likely to benefit from the characteristics of your company? Is the principal value in your customer base, your people, your geographical coverage? Mapping these benefits to prospective buyers will result in buyers that are not necessarily competitors. Opportunistic buyers are often better suited than those with an acquisition on their agenda. Lateral thinking at this stage pays great dividends.

Sequoia identifies qualified buyers through the following means.

Market Research
Exhaustive market research is undertaken to identify allied industry sectors whose member companies would benefit from a combination with your business. Sequoia mines numerous industry databases and internet sources for companies in those sectors. The research tools at our disposal enable us to not only determine the potential fit of the companies, but also to identify the company’s acquisition history, and details on the company decision makers. We compile a list of prime candidates to whom your company can be marketed to, however, the list is provided to you for review and approval before contacting the company CEOs or other parties to determine interest in the opportunity being presented.

Sequoia’s Professional Network
Sequoia invests significant time and energy cultivating its network of professionals related to the “liquidity event”. We have built a database of approximately 1,300 individuals locally and worldwide that are either mergers and acquisitions professionals in the field of business brokerage, business succession, and private equity or are part of a community of business succession advisors adjacent to liquidity events such as corporate accountants, lawyers, and wealth managers. In addition, we maintain a stable of corporate, private equity, and high net worth individual buyers seeking to buy a business like yours. Distribution of the Anonymous Business Profile of your company to our Network has proven to be fertile ground for generating qualified buyers for businesses we have successfully sold in past engagements.

Buyer Qualification
Just as out-of-box thinking, professional investment, and grassroots sales effort begets a quality market of buyers, a rigorous sales process yields maximum participation. We contact the decision makers (usually the CEO, CFO or other executive) of each company in the target buyer market. During each contact, we establish credibility, focus on the benefits of your company to the buyer, form the basis for future discussion, and maintain confidentiality. We determine the buyer’s level of interest to acquire your company. After a review of the Anonymous Business Profile, if the buyer has a bonafide interest, they sign a nondisclosure agreement (NDA) protecting the confidentiality of all subsequent communications and information transfer. Prospective buyers are qualified to determine their motivation, fit, and financial ability to consummate the purchase of your business.

Qualified buyers under NDA are introduced to your company in more detail through delivery of the Confidential Business Presentation. The Confidential Business Presentation is a high level introduction to the business presented by Sequoia to the target company decision makers either in person or via the web to out-of-market buyers. This forum is not only the initial pitch on the company, but also serves as an interactive session in which we can further qualify the buyer.

After the Confidential Business Presentation, qualified buyers are provided the Confidential Information Memorandum. Following further discovery and qualification, the buyers are introduced to you in a controlled set of meetings or discussions. It is during this stage that we must assert a compelling commercial argument to each buyer that emphasizes the added value represented by your company within the framework of their operation or ownership. Likewise, we must reaffirm the expected commercial terms of a successful deal. After a successful fit has been established between the preferred buyer and seller, the next step is to negotiate a letter of intent.

Negotiate Letter of Intent
It is important that the chosen buyer is made aware that, whereas you may grant some degree of temporary exclusivity to them, you have not rejected the other finalists; nor have you severed relations with them. To do so would ignore commercial realities of this stage of the deal since retaining this right offers you choice, which in turn influences the price, speed, and terms ultimately received in the deal. A Letter of Intent (LOI) from the buyer documents the major terms of the deal including:

• Confirmation of the price and means by which it is to be paid
• Conditions precedent: matters agreed to be resolved before closing
• Confirmation that it is non-binding; subject to a Definitive Agreement of Purchase and Sale
• Restrictive covenants such as noncompete clauses
• Recognition that warranties and indemnities are to be detailed in the Definitive Agreement
• An agreed period of exclusivity or no-shop clause
• A timetable of events

Critically important is that the LOI clearly establishes all business terms of the deal. Agreeing to agree at a later point surrenders negotiating position to the other side and certainly increases cost, time, and frustration to the due diligence and closing process. Savvy buyers view the oncoming due diligence phase as the beginning of the negotiations in an attempt to erode value agreed to in the LOI. Sequoia negotiates all the business items before accepting the LOI as a means to circumvent that strategy and to defend the value of your business. A business is a moving target, so what is really being sold? Is it enterprise value or equity value? How is the working capital rationalized from LOI to closing? Who settles nontransferable outstanding bank advances? Does the business have redundant assets that should not be transferred? How are allowances managed for warranty expenses, obsolete inventory, bad debts, extended and tainted receivables? What happens to capital leases and long term debt? These are issues that must be analyzed and documented well before the LOI phase to establish and defend the value of the business through closing. Failure to do so can ultimately result in a dramatic reduction of the negotiated purchase price at best; and a frustrated deal at worst.

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Step 3 - Close the Deal

The following steps remain to close of the deal; a process that takes typically two months to conclude.

Due Diligence
When writing a letter of intent, the buyer takes a leap of faith. The buyer's actions are based on third-party information; usually with caveats that the information is subject to buyer verification. The time has come for the buyer to validate that what has been represented is substantially what is being bought. To facilitate, Sequoia will post the electronic data room to a secure authenticated web site to enable select, time-limited access to the buyer and the buyer’s advisors engaged in due diligence. All information flow is managed and tracked by the Due Diligence Punch List (see below).

Sequoia plays a critical role in managing the effects of change in the mindset of the parties during this phase.  Although buying and selling a company is a business matter; it is one conducted by people.  When an LOI is accepted there is a distinct change in buyer and seller points of view.  Glasses once half full become half empty.  The increased presence of advisors (accountants, bankers, lawyers, and wealth managers) produces conflicting information and negative viewpoints.  Maintaining momentum is crucial.  Sequoia’s role now focusses on defending value, maintaining clear and direct communication flow between all parties, anticipating roadblocks and solutions thereto, and eliminating friction and mitigating emotions between parties adopting an adversarial stance.  Until the deal is done, the process remains a sales function and closing becomes the number one most important sales skill.

Data Room Punch List
Managing the flow of information is a full time job once there is an accepted Letter of Intent in place and due diligence is underway. It is critical that Sequoia and the Buyer have all information catalogued and accounted for to facilitate a smooth and expeditious due diligence process. The Punch List is used to ensure that all documents and data which are sent to the Buyer are tracked from source of request through posting to the data room to satisfy each due diligence item without the typical redundancies that can cause significant delays, and in some cases, can derail the deal.

Assign Material Contracts
Many businesses have valuable contracts with key suppliers, distribution channels, or customers that require consent, explicitly or otherwise, to assign or transfer to a third party (i.e. the new buyer of your company). The realities of business dictate that the timing of these meetings be well thought out to ensure a successful outcome. Sequoia has considerable experience in the planning of these meetings and generally attends them with you and the buyer of the business.

Purchase and Sale Agreement
This will be the final agreement upon which your business is sold. The buyer’s lawyer initiates the agreement.

Both sides need some caution with their lawyers at this stage. First, choosing a lawyer experienced in mergers & acquisitions activity is paramount. There are many facets of business law; those focussed on M & A activity know the ins, outs, and nuances of business transactions and are a necessity for representing your legal interests in this matter. Besides the lawyer’s specific expertise, a good lawyer will: (i) focus on closing the deal, (ii) pragmatically find a way around problems; and (iii) think in sound commercial (and not purely legal) terms. Conversely, a poor or inexperienced lawyer will find ways to unpick a good deal through irrelevant distractions to the point where it becomes at risk of frustration or failure. We must agree with the buyer that both sets of lawyers are to be servants of the deal and not masters of it.

Sequoia’s role at this stage is to: (1) Coordinate the activities between the parties and their lawyers; keep all parties focussed on the “finish line” especially considering the emergence of matters of dispute; and (2) intermediate on business matters that may arise during the drafting of the final Purchase Agreement.

Our job is complete when the transaction closes.

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