Magazine article Mortgage Banking

The Process of Selling a Company

Magazine article Mortgage Banking

The Process of Selling a Company

Article excerpt

LAST MONTH I OUTLINED THE STEPS TO take when preparing your company for sale. This month I discuss the first phase of the process involved in selling your company once you have made the decision to sell. Next month, the actual marketing of a company, or phase two, will be addressed.

From my perspective, the first step in the process of selling your company is choosing your adviser. As with the decision to hire an underwriter, you need to hire an advisory firm best suited for the job. Deal size is important, because the potential fees for the transaction need to be in line with the minimum fee requirement of the firm. You should hire an adviser who understands your business and the universe of potential buyers, and more important, has contacts with those buyers.

Sometimes the best buyers may be other companies in the same business looking to consolidate their market position. Other times the buyers who will pay the highest price will be new market entrants with strategic reasons for wanting to be in your line of business. An adviser who has relationships with both types of buyers will benefit you the most. In addition to knowing the buyers, your adviser should have prior experience with transactions in your sector. This experience will prove very beneficial to your process.

The sale of a company can be a demanding process. Make sure the adviser you choose has the resources to handle the assignment. Be sure to ask if your adviser has any competing assignments for similar companies within your industry. It's not a good idea to be in the market at the same time as a very similar competing deal, especially if the same adviser represents that company.

The adviser will serve as your agent and will be responsible for orchestrating the entire sale process. You should also look to your adviser to handle communications with potential buyers. You should not handle communications yourself until principal-to-principal communications are necessary to complete a deal. Think about the style of the people who will be handling the process, and make sure you are comfortable that their style is in line with the image you want projected in the marketplace.

You will need to choose an attorney to assist you in the transaction. In particular, it is very important to have an attorney who understands your business and has advised other clients on similar transactions. You will want to have control of the drafting of the contract. So, your attorney will be in charge of this. An attorney who doesn't understand the nuances of your business could cost you money far in excess of the fees charged.

The next major decision to be made involves whether to run an auction process. An auction process involves attempting to solicit interest in your company from a large number of selected buyers throughout the market. A modified auction involves a more targeted approach geared to solicit interest from a smaller group of buyers who are thought to be the best buyers for the company.

Both methods are meant to create competition for the company in an effort to achieve the highest price and the best terms for the seller. The approach taken depends on the conditions in the marketplace at the time. There are times when market interest in your line of business is not great enough to run any type of auction. …

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