How We Sell Your Business

Getting to know each other
Step 1 - Broker's Opinion of Value
Step 2 - Prepare the Business for Sale
Step 3 - Create a Market to Sell the Business
Step 4 - 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 - Broker's Opinion of Value

To ensure that your selling price objectives are attainable, calculation of the expected selling price of your company must be done before approaching the market. Sequoia will prepare a Broker’s Opinion of Value of the expected selling price. The Broker’s 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.

If the Broker’s Opinion of Value meets your selling price expectations, we can begin to prepare your business for sale.

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Step 2 - Prepare the Business for Sale

Sequoia will conduct guided interviews with you 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 Prospectus; and (4) the Confidential Price Analysis. 

Anonymous Business Profile
The ABP is a one-page data sheet used in the early stages of buyer contact.  It does not identify your company name, location, or other characteristics of your company that you deem confidential.  It highlights the fundamentals of your company and sells the benefits of your company’s unique characteristics to buyers.

Confidential Business Presentation
Prospective buyers are delivered an in-person sales pitch on the company. The centre piece is a comprehensive Keynote (Powerpoint) presentation about the business tailored for the audience to which it is presented. The presentation is based on the content of the Confidential Prospectus (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 Prospectus
The Confidential Prospectus is an individual expression of the unique characteristics of your company.  It is provided only to parties that have been qualified and have signed a nondisclosure agreement.  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 otherwise committed in their mind that they wish to purchase your company, they will inevitably question the amount which they are being asked or 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 Broker’s Opinion of Value (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 an Offer to Purchase has been mutually accepted, the buyer’s advisors (accountant, lawyer, etc.) are naturally predisposed to claim the price offered was too high. 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 an Offer to Purchase or Letter of Intent has been mutually accepted and the purchase deposit monies are received in Sequoia’s Trust Account, 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 Offer acceptance and distributing it electronically after Offer acceptance ensures deal momentum is preserved.

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Step 3 - Create a Market to Sell the Business

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, shares, vendor financing, exit timing, warranties; these and other terms are influenced by competition more than any other factor.

Identify Prospective Buyers
Identifying the maximum number of qualified buyers is the key. The most probable buyer does not fall into a single category.  For companies valued under $2.5 million, the buyer is likely an entrepreneurial buyer; an individual that may be a first-time owner-operator of a business.  Every buyer wants to know a company’s upside but risk abatement and sustainability are this buyer’s main concerns and are seen by a historical view of the company. Companies valued more than $5 million are likely bought by a strategic buyer aiming to acquire synergy from your customer base, geography, etc.

Your company may appeal to both buyer groups and extra effort must be made to attract them since buyer motivation ultimately drives value more than earnings multiples. The best buyers must be actively sought. 

Sequoia will seek qualified buyers through a combination of:

1. Working with you to identify allied industry sectors that would benefit from a combination with your business. Sequoia then researches companies in those sectors and contacts the company owners or CEOs to determine interest in the opportunity presented.
2. Promoting the opportunity to Sequoia’s:
   1. Stable of corporate, private equity, and high net worth individual buyers seeking to buy a business like yours;
   2. Network of mergers and acquisitions professionals in the business brokerage, business succession, and private equity fields; and
   3. Community of business succession advisors adjacent to liquidity events (accountants, lawyers, and wealth managers).
3. Advertising (anonymously) the business for sale in select publications and trade journals subject to your approval and funding of a targeted advertising campaign.

Invitation to Participate
Just as out-of-box thinking begets a quality market of buyers, a rigorous sales process yields maximum participation. We will contact the decision maker (usually the owner or CEO) 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 will determine if the buyer has interest to acquire your company. If so, the party is extended an Invitation to Participate that includes:

• Anonymous Business Profile
• Non-Disclosure Agreement (NDA)
  

Each prospective buyer must sign a nondisclosure agreement 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 the company in more detail through delivery of the Confidential Business Presentation.

Solicit Offers to Purchase
After the Confidential Business Presentation, the remaining qualified buyers are eligible to receive a Request for Offers that includes:

• Confidential Prospectus
• Offer to Purchase or Letter of Intent Template
  

All parties are encouraged to interact with the seller 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.

Accept Offers for the Business
Of the offers received it is important that the chosen one 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. An Offer to Purchase or Letter of Intent 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
• 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
  

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Step 4 - Close the Deal

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

Due Diligence
When making an offer to purchase, the buyer takes a leap of faith. The buyer's actions will have been 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.

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 offer 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 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.

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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