Downfalls when rushing to the market
Often, during discussions with potential divestment clients, we are asked “how quickly can you take my business to the market?” Or, “Can you start approaching prospective acquirers straight away?”
When potential divestment clients begin their discussions with us, they have normally made a firm decision that they would like to divest. On top of this, divesting sooner rather than later is normally their preference. We understand this, however rushing to the market is filled with danger, and more often than not will actually slow the process down, and generate inferior outcomes.
In our experience, preparation is key when considering a divestment of your enterprise. This means, your Prospectus or Information Memorandum is complete, all source documents are prepared for the due diligence stage of the transaction, you have agreed on an appropriate target list of potential acquirers with your advisor, and that you have discussed your potential divestment with legal and accounting advisors.
The downfalls of rushing to the market can be summarised as follows:
1. It places you in a position of weakness
By properly preparing prior to going to the market, you will be in a greater position of control. This comes from the ability to approach your target list of prospective acquirers in a planned and methodical manner, and determining how best to release information to prospective acquirers in a confidential manner, whilst both generating and maintaining competition.
If you’re not prepared, the approach to prospective acquirers becomes jolted and unplanned, with an inability to release appropriate required information to potential acquirers in a smooth fashion. This diminishes your chances of developing competitive tension, and lowers your market credibility.
2. It will not make the process any quicker (however may make it slower)
Proper preparation will allow you to move towards and into the due diligence stage of the transaction more quickly. During due diligence, a prospective acquirer will expect to review and analyse a range of documentation on the business’ performance, and relating to key risk factors that may impact on your business’ future performance.
Many documents and records required during due diligence will be the same from purchaser to purchaser (like property leases and financial records), and these documents should be ready for due diligence prior to going to the market. Your advisor can guide you with this.
The truth is, it is highly unlikely for a prospective acquirer to consider proceeding with an acquisition without proper completion of due diligence. Accordingly, you should not approach any prospective acquirers until you are ready for this stage of the process.
3. You have not sought appropriate legal and accounting advice
Far too often, business owners rush to complete the sale of their business without giving proper consideration to accounting and legal issues. Professional accounting and legal advice allows business sellers to ensure they maximise their after tax proceeds from a divestment, as well as minimising any legal risks which could emerge from a transaction. Accordingly, it is highly recommended that advice is sought in these area prior to going to the market.
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Careful and methodical preparation does take time. It is of vital importance however in ensuring you receive an optimum divestment outcome.
If you are seeking a professional advisor to assist you with the merger, acquisition, divestment or valuation of a business with an enterprise value of between $1 million and $50 million please contact Quinn M & A on 02 9223 9166 or email info@quinnma.com.au to find our nearest office.
