This blog will give you an overview of the ten steps involved in a quality sales process. Taking you from valuation to company disposal with minimum pain along the way.
To ensure the process to sell your consulting business runs smoothly and to mitigate any risks, as well as maximising the value of your firm, adequate planning and preparation is the key.
Step 1 – Strategic Review
Initially, establishing a comprehensive strategic plan is essential to align all necessary elements to successfully achieve your transaction goals.
Those elements should include:
- What is the right strategic option for your business? Consider timing and type of deal, such as sale to strategic buyers, management buy-out/sale to financial investor, or sale to financially-backed strategic buyers.
- How do you establish a target valuation? To position yourself strongly in negotiations, it's crucial to understand what your business could be worth.
- Are your shareholders aligned? Achieve unity in your exit strategy and valuation expectations.
- What are the opportunities for value creation before a transaction? Explore what you can do to maximise value before engaging in a transaction.
- How can you plan to reduce risk? Identify potential issues from a buyer's perspective that may affect your sale and consider strategies to mitigate these risks.
Our sell-side strategic review process assesses the risk factors that may cause problems or affect the maximum value. Once identified, you can put a plan in place to mitigate or eliminate the risks and maximise the value of your firm in the process.
Step 2 – Maintaining business as usual
Ensuring there are sufficient resources to manage business-as-usual activities and the ongoing growth of the firm, in addition to the sales process is another vital step. Failure to do so may cause delays in the sale or reduce the initial price of the firm. It may be beneficial to employ advisors at this stage to reduce the management load of the sale process.
Step 3 – Building the buyer list
Using the intelligence from your team and your M&A advisor to sell your consulting business, form a list of 40 or more potential bidders/buyers who may be interested in acquiring your consulting company. Categorise the list into groups based on a view of their potential synergy with your firm to effectively sell your consulting firm.
Step 4 – Preparation of sale documentation
Your M&A advisor will be required to collect and produce the appropriate documentation in preparation for the sale of your firm. This comes in five forms:
- The ‘Blind Profile: a two-page marketing document containing the financial, operational, service and client details without disclosing the name of your firm. It will also highlight the buyers’ synergy with your firm and may be slightly altered to target different categories of buyers.
- The Information Memorandum (IM): a 30-page document containing all strategic, financial and operational information. This includes financial history and projections, service line descriptions, clients and markets, staff and compensation, assets and liabilities, firm strategy and reasons for the sale.
- A compelling management presentation needs to be produced that can be customised and used in initial meetings with bidders.
- Financial and Growth Model Analysis: Incorporate into the Information Memorandum (IM) to detail historical financial performance, future projections with assumptions, and a comprehensive analysis of growth drivers tailored for financial buyers' interests.
- Vendor due diligence: If the favoured option is investment from a financial buyer, consider commissioning appropriate due diligence yourself.
Step 5 – Lining up legal and tax planning experts
Engage lawyers and tax planning experts early to minimise or avoid any issues that may impact on organisational structure and remuneration, contracts, shares, liabilities or company incorporation. Your M&A advisor will be able to recommend a trusted expert if you don’t have access to one.
Step 6 – Engaging the buyer list
With all prior background work completed to sell your consulting business, you can now start contacting your buyer list to begin the sales process. As an initial step, send out the Blind Profile then follow up with a phone call or email to establish interest and pre-qualify buyers as you move forward to sell your consulting firm.
Step 7 – Indicative Offers and Management Meetings
Before progressing to detailed discussions, interested buyers are invited to submit indicative offers.
This early step allows you to gauge the seriousness and financial capability of each potential buyer without committing to any single party. Upon reviewing these indicative offers, select a shortlist of buyers who present the most compelling terms for management meetings.
The purpose of these meetings is twofold: to impress upon the buyers the value and synergies your firm offers, and to further assess the buyers' commitment and fit. This approach ensures that only the most suitable and serious buyers proceed to the next stages, enhancing the competitive tension and potentially the value of the offers.
Step 8 – Second Round Offers and Due Diligence (DD) Preparation
Following the management meetings, invite the shortlisted buyers to submit their second-round offers, providing them with an opportunity to adjust their bids based on the insights gained during their interactions with your team. This step not only refines the pool of potential buyers but also maximises the value of their offers.
Simultaneously, prepare for the due diligence process by gathering necessary documents and information. This preparation is crucial for a smooth and efficient DD process. However, maintain engagement with multiple buyers during this phase to ensure competition and keep options open until you are ready to move to exclusive negotiations.
Step 9 – Exclusivity, Final Due Diligence, and Contract Drafting
Upon reviewing the second round of offers, select the most favorable buyer to grant exclusivity. This decision should be based not just on the financial offer but also on the buyer's strategic fit and the likelihood of a successful transaction. With exclusivity now granted to a single buyer, proceed with the final due diligence process.
This exclusivity phase is where the buyer thoroughly examines the financial, legal, and operational aspects of your business. Given the competitive process up to this point, exclusivity is a commitment from both sides to work towards finalising the sale. During this stage, your lawyer will draft the Sale and Purchase Agreement and related documents, ensuring that all terms agreed upon are accurately reflected.
Step 10 – Encouraging Pre-emption for Early Exclusivity
In an environment where competitive tension has been successfully fostered, encouraging pre-emption becomes a key strategy to sell your consulting business. This strategy involves a buyer presenting an offer that is so compelling in terms of price and/or structure that it effectively 'knocks out' other potential bids, showcasing a proactive approach to sell consulting services.
Encouraging pre-emption not only serves to potentially increase the sale price but also demonstrates a buyer's commitment and confidence in the value of your business. It is a clear signal of their desire to expedite the process, reducing the time and complexity involved in dealing with multiple parties.
This approach requires a delicate balance, as it involves weighing the benefits of a quick, premium offer against the potential value of a more drawn-out competitive process. However, for sellers, the prospect of a pre-emptive bid can be particularly attractive, offering a faster route to sale completion with potentially fewer complications.
If you have any questions about this process, start a discussion with our Equiteq chatbot. Our experts will respond to any of your comments or questions.