Selling your business

May 2016

Selling your business is a complex process. We do not sell our business as we sell our car through a small ad in the newspaper for example. Except for small businesses perhaps...

 

The business broker

Selling a larger business usually requires a business-for-sale expert. Think for a moment: to sell your home, you do not hesitate to turn to a professional real estate agent to help you. So to sell your business, which is a much more complex transaction involving important tax, legal and accounting aspects, you should also do business with a business-for-sale expert.

But beware, many people claim to be experts in selling businesses but do not have the training or experience required. Unfortunately, this profession is not governed by appropriate regulation. Some real estate agents specialize in this area but more often sell small retail businesses rather than companies of a certain size.

Canadian banks and securities brokers often have a mergers and acquisitions team that take on business sale mandates. However, these teams are better suited for the sale of large companies. The team of the Montreal Canadians and its Bell Centre is a good example, where BMO Capital Markets was in charge of the sale. They have analysts and the most appropriate network to carry out such a sale. But the cost of these institutions are often poorly adapted to the reality of SMEs.

Quebec SMEs will then turn to small business sales expert firms whose cost structure is precisely suited to the reality of SMEs here. For example, our firm TRANSAMAX offers such services to Quebec SMEs.

What is the role of such an expert? The first thing your business broker needs to do is understand your goals.

• Are you just selling your business at the best possible price and do not want to hear about it afterwards?
• Or instead, would you prefer a gradual retirement and remain involved in your business for a few years?
• Do you want to make sure that the company will be maintained and that the buyer will not close it down only to eliminate a competitor?

So many questions your business broker will need to have answered as the sale strategy will vary in response to these.

Business Valuation

Then he will need to assess your business. This is why it is essential to do business with a serious firm that has in its ranks financial professionals able to evaluate a company. You will have to agree with that assessment. Unfortunately too many transactions are not completed because the business owner has overvalued his business and cannot find a buyer for the asking price.

Once you have established and accepted the value of your business, your broker will want to get a lot of information about your company, its customers, its market, its key employees, financial results, etc. In fact, he will need to learn about your business and know it well in order to do his job properly and sell it. Beware of those who leave with a sales mandate after only one meeting.

Documentation

He will then prepare a summary report on your business which will be sent to potential buyers.  At this level, its success will depend on his contact network and his ability to identify interesting targets.

Once the interest is triggered among certain potential buyers, he will have them sign a confidentiality agreement and provide them with a much more detailed presentation of your business (the Confidential Information Memory). After this step, should one or more potential buyers be interested, they usually make a conditional offer to a due diligence. Then begins negotiation process of the terms of the offer where the price is often the least important point but not the only one: sale of shares or assets, balance of sale price or not, earn-out clause or not? So many questions for your expert to answer, if he is qualified, of course.

Due diligence

If all goes well, then comes the due diligence. You will need to open all the books. The buyer will want to check that everything is in order and that there are no skeletons in the closet. You may find the information requested by the buyer somewhat overwhelming but this is his privilege. If the due diligence is carried out without any problems, the closing of the transaction will take place following negotiations between lawyers.