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Selling a company is a nerve-wracking and potentially life-changing experience that requires meticulous preparation and strategic thinking. From crafting the perfect investor presentation to navigating the due diligence process in M&A, several critical steps are involved in getting the most out of a profitable company.
“The exit process is not something you want to take on alone,” says Jay Jung, Managing Partner and Founder of Embarc Advisors, a leading M&A and corporate finance advisory. “First, consult an M&A advisor to assess your company’s worth, then employ their expertise along with that of your financial, tax, and legal team as you craft an investor presentation and prepare for due diligence.”
Investor presentation development
The investor presentation, often referred to as a confidential information memorandum or presentation, boils down to an engaging narrative that captures the broad essence of a business, highlights its strengths, and paints a vision of future growth. This story enables potential investors to see your business as the opportunity they are looking for.
According to Jung, the presentation should open with a captivating, two-page story. “Start with a brief overview of the business and what it does, and then highlight the key metrics that make your business stand out. Most buyers are financially motivated, so metrics allow them to quickly assess whether it is a good fit and high priority.”
Jung also warns that the narrative’s main character should not be yourself. “Make yourself replaceable,” he says. “Build systems and a leadership team that can function without you. The biggest risk in acquiring a business is the key-person risk associated with the owner. Buyers will pay a premium for a business that does not rely on the founder.”
After the opening narrative, provide detailed insights into your business’s market. Show compelling data, projected growth, and credible reasons why your business is uniquely positioned to capitalize on this opportunity by clearly outlining your company’s competitive advantage and what sets it apart.
“Investors need to see solid numbers. They will quickly see through the fluff,” notes Jung, “so include key financial metrics like revenue, profit margins, growth rates, and projections. Be transparent and always justify your numbers with data-driven analysis.”
Knowing that laying a strong financial foundation will be part of the exit process, you will want to take several years to prepare. With time and strategic planning, you can increase your business’s value before selling it.
Jung advises starting this process by investing in growth and building the leadership team so you can cut unnecessary costs and improve margins as the sale date approaches. “A percentage of growth is worth more than a percentage of margin,” Jung emphasizes.
Because investors invest in people as much as in ideas, you should use your presentation to shine a spotlight on your core team by showcasing examples of their expertise, accomplishments, and the critical roles they play in the business’s success. A strong, cohesive team instills confidence in the company’s future.
“In your investor presentation, a picture can be worth a thousand words,” observes Jung. “Charts and infographics make these presentations visually appealing and easy to digest, but keep your slides clean and avoid overloading them with text. Remember, facts tell, stories sell. And you are selling your company.”
Due diligence support in M&A
Once you hook potential buyers with your compelling presentation, the next crucial step is due diligence, where the prospective buyer digs deep into every aspect of your business to verify its value. Due diligence can be daunting, but thorough preparation can significantly streamline the process and ensure a successful sale.
While buyers will conduct their due diligence before a sale, you can proactively smooth the process by conducting your own independent analysis of your company’s financials. For instance, your Quality of Earnings (QofE) report evaluates your company’s customer base, recurring revenues, profit margins, and any adjustments related to one-time costs. A thorough QofE will present your normalized financials in a clean, easy-to-understand manner that helps validate your valuation and build trust with potential buyers.
“Don’t conduct a QofE report just to paint a rosy picture of your business,” Jung observes. “Your QofE will reveal the red flags you can address before a sale and opportunities to enhance your EBITDA. Proactively investing in a QofE ensures you market the highest EBITDA possible and positions you to effectively defend valuation during due diligence.”
To make the process as transparent and straightforward as possible, prepare key documents such as balance sheets, profit and loss statements (P&L), intellectual property (IP) ownership, contracts, and tax records. Best practice involves cleaning up accounting books in advance to avoid surprises during the buyer’s due diligence. Buyers feel far more confident about the transaction when everything is up to date and clearly organized.
Jung explains that you should also expect prospective buyers to scrutinize your business’s financial health extensively. “Be ready to provide detailed financial records and answer questions about revenue streams, expenses, cash flow, working capital, and debt. Ensure that your numbers are accurate and well-documented.”
Buyers will also review legal aspects such as ownership structures, compliance with laws, pending litigation, and intellectual property rights. Work with your legal team to ensure all legal paperwork is in order and address potential red flags beforehand. Buyers will also closely examine your company’s current and past operations, management processes, and organizational structure, so be prepared to discuss your processes and risk management strategies.
As buyers envision the merger, they will naturally consider how the new company’s culture aligns with theirs. You can demonstrate how the company’s values and work environment contribute to the success and sustainability of the business.
“Selling your company is not a simple transaction,” concludes Jung. “Get the right advisors on board. Work with a deal-savvy attorney, M&A advisor, and tax professional whose guidance can protect your interests and maximize payout. They will help you present your business in the best possible light and confidently navigate the complexities of due diligence.”
Also read: 8 Reasons it May be Time to Sell Your Business
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