Sale Process

In a company sale, there are several milestones on the way to the final sale. The order of each step can vary. Since no deal is the same, the order of the steps differs depending on the company sale. You can find more content about these milestones explained in more detail under the scheme.

The Non-Disclosure-Agreement

As soon as you begin discussions with a prospective buyer, the actual sales process begins. At the very beginning of the sales process, there is always a non-disclosure agreement (NDA). In English, this document is called a Non-Disclosure Agreement (NDA) and is a common name for this contract in German. This type of agreement is the first step on the way to selling your company. This is because the NDA lays the foundation for all discussions that go further than anonymized and simplified information about your company. In addition, the NDA ensures that your intention to sell cannot be shared with third parties. The NDA prohibits a potential investor and its employees from sharing confidential information about your company with uninvolved third parties.

Letter-of-Intent

After signing the non-disclosure agreement, the prospective buyer has already received information and important insights into your company. Now, however, the potential buyer wants to learn more about your business and validate the previous information in order to make an offer. In the letter of intent, a prospective buyer declares his interest without obligation and also specifies an initially non-binding price corridor and facts about the planned acquisition. Further price mechanisms, such as an earn-out, are also already mentioned in the LOI. In addition, an LOI must explain who exactly is selling what and who exactly is selling. The essential contents of an LOI are summarized in the following checklist:

Due Diligence

After signing the LOI, the investigation of the company, brand or store for sale begins. This investigation phase is initiated by the buyer and is called due diligence in M&A language. In a due diligence, an investor is allowed to gain numerous detailed insights into a company. 

For example, a prospect may see profit and loss statements and monthly financial statements to understand your revenue, cost, and profit structure. They may also get insights into your seller account, for example, via the seller board. He should also know on which platforms you generate how much revenue and how much margin with which products. With these financial figures, the past twelve months are the most interesting for an investor. In addition, typical e-commerce key figures such as the conversion rate, return rates, unique visits and clicks in your own store, dwell time, bounce rate, number of ratings and number of stars on marketplaces such as Amazon are important. All this information helps your buyer to better understand what your business is worth to him and how high the final purchase price will be. Therefore, it is a good idea to have these key figures at hand yourself or to have an external consultant help you with the preparation of the key figures. Another important criterion in due diligence is the number of items you sell and the quality of the product pages with descriptions, photos and, of course, ratings.

After signing the LOI, the investigation of the company, brand or store for sale begins. This investigation phase is initiated by the buyer and is called due diligence in M&A language. In a due diligence, an investor is allowed to gain numerous detailed insights into a company. 

For example, a prospect may see profit and loss statements and monthly financial statements to understand your revenue, cost, and profit structure. They may also get insights into your seller account, for example, via the seller board. He should also know on which platforms you generate how much revenue and how much margin with which products. With these financial figures, the past twelve months are the most interesting for an investor. In addition, typical e-commerce key figures such as the conversion rate, return rates, unique visits and clicks in your own store, dwell time, bounce rate, number of ratings and number of stars on marketplaces such as Amazon are important. All this information helps your buyer to better understand what your business is worth to him and how high the final purchase price will be. Therefore, it is good if you have these key figures at hand yourself or have an external consultant help you with the creation of the key figures. Another criterion in the due diligence is the number of items you sell and the quality of the product pages with descriptions, photos and, of course, ratings.

There is really nothing to hide in a due diligence. After all, every company has experienced a flaw at some point or there were decisions that you would not make again in retrospect. By taking the initiative to be transparent, however, you maintain your credibility with all parties involved in the deal. And credibility is extremely important for all sales talks. So play your cards close to your chest and always be honest. Also disclose topics that no one has asked about. If you are unsure about how to communicate sensitive issues, ask a trusted advisor or your consultant. 

Signing

The signing is the day when all parties have signed the sale and purchase agreement. Casting a company sale into a contract is the most important step towards the exit. It puts on paper what has been previously negotiated, and there should really be no more significant negotiations at this stage. So commit yourself and your negotiating partner to the previously agreed parameters as soon as it comes to the contract wording. After all, the only thing left to do now is to close the sale. Basically, I distinguish between two different activities that need to be completed when drafting the contract: the commercial part and the legal part.

Closing

In addition, the so-called closing conditions are defined in an SPA or APA. Since a company sale cannot be handled in the same way as the sale of an object by handing over goods and simultaneously receiving money, execution conditions are an integral part of every company sale. The closing conditions define the requirements that must be met in order for company shares or, for example, a seller account on Amazon to change hands. The closing conditions are a step-by-step transaction in which the following key points must be fulfilled as closing conditions:

  • The buyer has deposited the agreed purchase price in an escrow account. Usually, the buyer transfers the purchase amount after the signing, i.e. the day when an SPA or APA has been signed by all parties. This step assures the seller that the purchase price will be received. An escrow account can be handled by a notary public
  • The seller has initiated the transfer of the company shares and the transfer of a seller account to the buyer and this transfer has been completed. This step secures the investor in the acquisition of the acquisition target.

Once these essential conditions are met, a protocol is signed by the seller and the buyer. This protocol is now handed over to the notary, who manages the purchase price in a separate account. The notary then also initiates the entry of the sale in the commercial register so that the business shares change. A positive side effect is that the seller is guaranteed to receive his money upon fulfillment of the closing conditions. Depending on the agreement, the transfer takes place either directly upon fulfillment of the closing conditions or on the agreed closing day, if the closing conditions are fulfilled beforehand. Since there should only be a few days or weeks between the signing day and the closing day anyway, there are generally no long waiting periods for the payment of the sales price. 

With the closing day at the latest, the seller is no longer the owner of the company and should now also inform employees and suppliers. In particular, employees must be adequately informed about the change of ownership, because employees deserve information and brief background information about the sale to a new owner. A change of owner often causes uncertainties and concerns among employees. In my view, these uncertainties and concerns must be heard, because employees legitimately want to know who will now be the new owner and the new boss. Employees’ questions should therefore be answered transparently and honestly. In my experience, transparency about the sale of a company builds trust in the new owners and bosses. Keep this in mind when the closing is imminent and prepare well for possible questions from the workforce.

The closing marks the start of the integration phase for the buyer, which is also known as post-merger integration.

Do you have further questions about the process of selling a company or do you want to sell? Then become a Lucky Flipper and arrange your free initial consultation with us:

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