The stages involved in selling a business

1/ MARKETING PHASE

• Defining the scope of the disposal project

During this preliminary stage, the prospective seller focuses on the sale project itself, asking the following main questions: What is the value of the sale? What items should be disposed of? When to sell? What type of buyer should you target?

• Assessing the value of the business

The valuation of the business being sold is crucial, as it will form the basis for negotiating the sale price with the potential counterparty. The value of a business is assessed by taking into account a number of factors: the assets and liabilities of the business (asset approach), the current and future performance of the business (profitability or performance approach), and a comparison with similar businesses that have been sold on the market (comparative approach). Depending on the company, one or more valuation methods will be taken into account. And the last, most pragmatic one… the market will do the talking.

• Setting up a communication plan – targeting potential counterparties.

The future seller will contact one or more potential buyers, either directly or through a third party (usually an investment bank), who have already been identified.

At this stage, a company presentation pack is drawn up and sent to them to raise their awareness. The dossier provides succinct but ”
eye-catching” information.

If the potential buyer(s) express(es) an interest in the transaction, further information will be provided in a memorandum. In this case, a Non Disclosure Agreement (NDA) is signed to ensure the confidentiality of information relating to the company and the sale.

2/ NEGOTIATION PHASE

• Letter of Intent (LOI)

Following these initial discussions, one or more potential buyers will express their interest in acquiring the company by submitting a purchase offer containing the following information:

– Presentation of the buyer ;

– The purchaser’s interest in the business being sold ;

– Main terms and conditions of the transaction (scope, valuation, financing, legal) ;

– Exclusivity of negotiations for a specified period ;

– Calendar of events.

This offer, although precise, is not firm insofar as it makes the continuation of the transaction conditional on the completion of an audit, the conclusions of which will establish the real situation of the company and ultimately its valuation.

• The acquisition audit

The acquisition audit is an in-depth examination of the company from an accounting, financial, tax, legal, social and organisational perspective.

This review is carried out mainly through the exchange of documents and Q&A sessions.

Audits are carried out by legal (lawyers), accounting (chartered accountants) and/or financial (bankers) professionals.

Depending on the auditors’ conclusions, the purchaser will decide whether or not to proceed with the transaction.

• The final offer

If the audit report is satisfactory to the potential buyer, the latter will send the seller a definitive purchase offer including a valuation identical or different to that provided for in the indicative offer. The seller is free to accept or reject this offer.

3/ DISPOSAL PHASE

• Signing – signing the memorandum of understanding for the sale of the company

The memorandum of understanding for the sale of the business is a sales agreement between the seller and the buyer. It is signed when the sale is subject to the lifting of conditions precedent.

The sale agreement includes the following elements:

Conditions precedent (prior internal reorganisation, informing employees in advance, obtaining financing, etc.);

Scope of the sale ;

The obligations of the parties before and after the transfer ;

Conditions relating to the sale price; and

Negotiated guarantees (asset and liability guarantee, first demand guarantee, escrow).

• Closing – signing the sale agreement

Once the conditions precedent set out in the sale agreement have been lifted, the parties sign the deed of sale. This reiterative deed, incorporating the elements of the memorandum, formalises the conclusion of the transfer.

The company’s shares are transferred to the buyer in return for payment of all or part of the price agreed with the seller.

Where the parties do not make completion of the sale subject to the fulfilment of any conditions precedent, no memorandum of understanding is signed. The parties sign the transfer contract directly, which contains the same information as the memorandum of understanding.

• Post-closing

Transition support

The purchaser may request assistance from the seller during the months following completion of the sale.

Price adjustments

The deed of sale may provide for the sale price to be adjusted upwards by the payment of an earn-out, or downwards if the final sale price is lower than the price initially paid.

How guarantees are triggered

The purchaser has the option of enforcing the warranties provided for in the sale agreement in order to obtain compensation in the event of higher liabilities than initially anticipated or a shortfall in assets.