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How A Sell-Side Engagement Can Maximize Value When Selling Your Business

May 6, 2024

If you’re considering selling your business, a sell-side engagement can be the most viable avenue to help achieve your goals and maximize profits. In this quick guide, we’ll explore what sell-side engagements are, how they work, and the benefits they can offer in the context of mergers and acquisition (M&A) deals.

What Is A Sell-Side Engagement?

A sell-side engagement is a process in which a business owner hires a sell-side advisor to help sell their business. These are typically business brokers for micro-to-small-sized businesses, mergers and acquisitions (M&A) advisors for mid-to-large-sized companies (those with an annual revenue of between $5 million and $50 million), or investment banker for corporates, multinationals or deals that involve particularly complex financial transactions (read more about the differences between business brokers, M&A advisors and investment bankers here).

Sell-side advisors bring a wealth of experience and industry knowledge to the table, ensuring that your business is presented in the best possible light to potential buyers, with the ultimate goal being to maximize the value of the business and ensure a successful sale.

Steps in the Sell-Side Engagement Process

A sell-side engagement involves a series of meticulously planned steps, each critical to the success of the transaction. From preparation to closing the deal, each phase requires careful attention to detail and strategic foresight. These include:

1. Preparing for Sale

Initial steps involve valuing the business accurately and conducting thorough due diligence to ensure all financial, legal, and operational aspects are in order, making the business more attractive to potential buyers.

2. Marketing the Sale

The sell-side advisor will then use the financial, legal and operational info gathered to develop a marketing strategy and create a confidential information memorandum (CIM). This is a key document used to market the business to potential buyers. It provides a detailed overview of the business, highlighting its value proposition to potential buyers without disclosing sensitive information.

Once the CIM is generated, the sell-side advisor will begin identifying potential buyers. By utilizing networks and market knowledge, sell-side advisors identify and reach out to potential buyers who align with the business’s strategic direction, ensuring a good fit.

3. Negotiating the Deal

Throughout the process, the sell-side advisor will work closely with the seller to ensure that their goals are being met and that they are getting the best possible deal. This includes evaluating incoming offers, considering not just the price but also the terms and strategic fit.

Once a suitable fit has been found, the sell-side advisors engage in negotiations to finalize the terms that best meet the seller’s objectives, balancing financial and non-financial considerations.

4. Closing the Deal

Finalizing the transaction requires meticulous legal and financial documentation, ensuring a smooth transfer of ownership and adherence to regulatory requirements. The sell-side advisor will guide the client through this pivotal process and manage any post-sale handover requirements.

Strategies for Maximizing Value in Mid-Sized Sell-Side Engagements

M&A advisors specialize in guiding mid- to large-sized companies (those with an annual revenue of between $5 million and $50 million) through the complex merger or acquisition process. Their sell-side expertize spans strategic planning, valuation, due diligence, negotiation, and deal structuring.

A seasoned M&A advisor’s strategic sell-side approach will encompass:

1. Thorough Preparation

Prior to engaging in the sale process, it’s essential to conduct a thorough evaluation of your business, identifying its strengths, weaknesses, and growth opportunities. Addressing any potential issues upfront can enhance its attractiveness to prospective buyers.

2. Targeted Marketing

A tailored marketing strategy is crucial for attracting the right buyers who recognize the value proposition of your business. Sell-side engagement employ targeted marketing techniques to reach qualified buyers and generate competitive interest in your business.

For example, Woodbridge International has hundreds of thousands of pre-vetted private equity group and private buyers in its database. We create a bespoke marketing video and sales pitch book for each client and then send this out to only the relevant potential buyers in our extensive base.

3. Negotiation Expertise

Negotiating the terms of a business sale requires finesse and skill. Experienced sell-side advisors leverage their negotiations expertise to secure favorable terms and maximize the sale price while ensuring that your interests are protected throughout the process.

Differences Between Sell-Side Engagements and Direct Business Sales

While sell-side engagements are a common route for businesses looking to be acquired by or merged with a strategic buyer, direct business sales represent another pathway, often characterized by the business owner taking a more hands-on approach in finding a buyer without the intermediary services of external advisors. Here are the key differences between direct sales and sell-side engagements:

You Versus a Team

In a direct business sale, the owner directly markets their business to potential buyers, handles negotiations, and manages all aspects of the sale process. This method is often perceived as more straightforward but requires significant effort and expertise on the part of the seller. Whereas with sell-side engagements there is a team of mergers and acquisitions, tax, financial and legal advisors on-hand to guide the seller through the process.

Fees Versus Actual Costs

Direct sales can potentially save on advisory and/or commission fees, but may incur higher costs in terms of time and resources spent by the owner. Therefore, while sell-side engagements may seem more costly at the outset, business owners need to factor in the cost of their time and resources, in addition to the potential for unexpected expenses such as having to hire a tax and/or legal practitioner to ensure compliance. Moreover, an experienced sell-side advisor will often secure a higher sales price, which, depending on the value of the deal, can negate the sell-side advisor’s fee.

Private Networks Versus Global Marketing Power

While business owners may have their own network of industry contacts, advisors in sell-side engagements have access to a far broader, global network of potential buyers and possess negotiation expertise, usually leading to better deal terms and higher offers.

Pre-Set Process Versus DIY

Sell-side engagements are often more structured and can navigate complex regulatory and financial landscapes more effectively than direct sales.

Direct Sale or Sell-Side, Which is Best for You?

Ultimately, choosing between sell-side engagements and direct sales depends on several factors, including: the size and complexity of the business; the seller’s expertise and comfort level with the sale process; and the desired outcome of the sale.

In general, sell-side engagements are suitable for mid-to-large-sized companies (those with an annual revenue of more than $5 million), more financially complex deals, and/or when the seller aims to maximize the sale price and terms through professional expertise.

In contrast, direct business sales are typically more appropriate for simpler, smaller transactions, where the owner feels confident in their ability to manage the sale and wishes to maintain greater control over the process. It’s important to note, though, that even smaller business sales often require professional M&A guidance and/or the services of legal, tax and financial practitioners.

Benefits Of A Sell-Side Engagement

There are several benefits to choosing a sell-side engagement for the merger or acquisition of your business. Firstly, during a sell-side engagement you have a team that can help you prepare your business for sale by identifying areas that need improvement and developing a strategy to increase its value.

Secondly, the team handling your sell-side engagement will have an access to a wide network of potential buyers, which can increase the likelihood of finding the right buyer for your business. For example, Woodbridge International has a pre-vetted database of hundreds of thousands of buyers and uses an auction-led approach to drive sell-side engagements, ensuring the company on sale is marketed to more buyers, which leads to more bids, higher prices and a better fit.

To summarize, a sell-side engagement will give you:

1. Access to Expertise

Sell-side engagements provide access to a team of professionals who specialize in navigating the complexities of the M&A process. From valuation to negotiation, their expertize can prove invaluable in securing the best deal for your business.

2. Market Insights

Professionals, such as M&A advisors, involved in sell-side engagements possess deep insights into market trends, buyer behavior and valuation metrics. By leveraging this knowledge sell-side advisors can position your business strategically to attract the right buyers and maximize its perceived value.

3. Guaranteed Confidentiality

Maintaining confidentiality is crucial during the sale process to prevent disruption to your business operations and mitigate any negative impact on employee morale or customer relationships. Professional sell-side engagements ensure that sensitive information is disclosed only to qualified buyers under strict confidentiality agreements.

4. Efficient Process

Selling a business can be a time-consuming and complex endeavor. Sell-side engagements streamline the process by managing every aspect, from preparing the business for sale to conducting due diligence, and from generating marketing materials, to identifying potential buyers to seeing the deal through to completion.

Moreover, seasoned M&A advisors like Woodbridge International will have a strict, pre-set deal timeline that ensures the process gains momentum and stays on track from initiation to deal closure.

Outsourcing all these processes to a sell-side advisor allows you, the business owner, to focus on running your business effectively.

How To Choose The Right Advisor For Your Sell-Side Engagement

A sell-side advisor could be a business broker, a mergers and acquisitions advisor or an investment banker. Choosing the right professional for your sell-side engagement is crucial to the success of your merger or acquisition deal.

Whichever route you take, always look for a sell-side advisor with experience with your size of business, one that has experience in your industry and one that has a track record of successful transactions. For example, while business brokers typically service micro-to-small businesses and investment brokers gravitate towards large corporations, if your business has an annual revenue of between $5 million and $50 million you’ll want to hire a seasoned M&A advisor for your sell-side engagement.

That’s because a M&A advisor will work with you, the owner, to prepare the business for sale, calculate your company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) and other important financial metrics, such as net income, as well as identify potential buyers, market your company to these potential buyers, negotiate the terms of the deal and see the deal through to closing. A seasoned M&A advisory firm, like Woodbridge International, will offer additional services such as training your management team to handle meetings with potential buyers and wealth management planning, among other services.

It’s also important to choose a sell-side advisor who understands your goals and is willing to work closely with you throughout the process. Don’t be afraid to ask for references and to interview multiple advisors before making a decision (get a list of questions to ask potential candidates here). Remember, the right advisor can help you achieve your goals and maximize your profits, so choose wisely.

Woodbridge International specializes in sell-side engagements for mid-sized companies with an annual revenue of $5M plus. Contact us for a free valuation of your business.