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Navigating the M&A Process: 7 Steps to Closing the Deal

By October 20, 2022No Comments

There are multiple reasons business owners look to sell their companies. Some are starting to think about retirement, while others want to capitalize on their success and increase their personal liquidity while pursuing new business initiatives. For owners like these, pursuing an exit transaction makes a lot of sense.

But it’s not as easy as “find a buyer and sell.” Understanding the different components of the M&A process can help you navigate the sale successfully and ensure you maximize your deal value while exiting on the best terms possible. To that end, here’s an overview of the steps you’ll go through as you define your exit strategy, take your business to market, find and assess potential buyers, and ultimately close your transaction.

Step 1: Define Your Strategy

Starting the M&A process begins before you go to market. Start with some basic questions:

  • Is it the right time to sell my business?
  • What type of buyer is the best for my company?
  • How can we ensure maximum value for all shareholders?

It is essential as a seller to define your goals going in. The executive team needs to define the objective of a sale and identify ideal buyer qualities. Consulting with an experienced outside advisor will help in this process. Be realistic, and let the needs of your company drive your strategy.

Step 2: Preparation and Planning

Once you have defined your strategy, it’s time to gather information about your company. This will likely be one of the most time-intensive parts of the process. You will need information, documents, and data to highlight your:

  • Company history and “story”
  • Financial performance over time
  • Products and/or services
  • Management structure
  • Supply chain and distribution networks
  • Customer base and mix
  • Sales and marketing strategies
  • Competitive landscape
  • Growth potential

Using this information, you and your advisor draft a Confidential Information Memorandum (CIM) – an in-depth report detailing all the information above. From the CIM, you will generate a high-level, anonymous overview of your company used as a “teaser” to generate initial interest in your company.

Step 3: Contact Strategic and Financial Buyers – NDA’s, CIM’s and Teasers

During the contact stage, it’s time to start reaching out to buyers who fit the criteria you set out in the planning phase. Your advisor will gauge their interest in the teaser with follow-up calls or emails to address questions and determine potential fit.

The companies that express interest will sign non-disclosure agreements (NDAs) and receive the full CIM to get more information. You can expect that this process will take a few weeks as the targeted companies take time to review everything and express interest. In the meantime, expect some follow-up requests for additional information.

Step 4: Qualification and Indication of Interest (IOI)

You will start to receive some preliminary Indications of Interest (IOI) from prospective buyers. An IOI is a (non-binding) offer from a potential buyer where they provide a range of valuation, financing info, a potential timeline, and a structure for the transaction.

The goal is to receive multiple IOIs to help you compare offers, drive up competition, and increase valuation in your favor. When sorting through the offers, keep in mind that price isn’t everything. It’s also important to consider cultural fit, buyer reputation, and the sources of funding offered.

Now you can create a “short list” and select companies for management presentations.

Step 5: Selection and Structuring the Deal – Letters of Intent (LOI) & Exclusivity

Now comes the part of the process where you sell your company in person. At this point, you will meet with potential buyers to introduce your management team, communicate value and goals, and position your company favorably. Meeting potential buyers in person will also help you get a feel for what they are bringing to the table.

Interested buyers then submit a Letter of Intent (LOI) that sets out the terms of the deal. Select the best offer. Note that a signed LOI establishes a period of exclusivity where neither party can engage with other firms while engaged in due diligence.

Step 6: Due Diligence

Here’s where the deep dive really begins. Both parties are now conducting their final due diligence efforts, with meticulous analysis of financial records, infrastructure, customer mix, talent, competitive landscape, etc.

This groundwork is time-consuming, but essential to find the right fit. Even if a deal looks good on paper, it requires time and effort to really see if it might work.

Step 7: Final Negotiations & Closing

After lots of hard work, the end is now in sight – closing the deal. Both parties agree to a price and deal structure. It’s time now to draft your communications to address employees, stakeholders, and the community.

Once the deal is signed and the wire transfer is executed, congratulations – you just completed the M&A process and sold your business. Now it’s time to celebrate and begin to enjoy the fruits of your labor.

We hope this short guide was helpful in laying out the basic structure of the M&A process. If you are looking to sell your business in the near term, consider Vision Point Capital as a trusted partner through what can be a lengthy and complicated process.