A Step-by-Step Guide of the Transaction Process

As a business owner, it is important to understand the value of your business along with industry specific market trends if you are considering a sale of your business. Whether you are looking to retire, start a new business or simply because market factors are in your favor, all are good reasons to explore a sale. At first glance the process seems simple, find a buyer and sell the business. When in reality, the process is rarely that simple as there are numerous factors to consider. Questions business owners often ask our team include:

·         When is the best time to sell my business?

·         Who are the buyers and how will I determine what buyer is the best fit?

·         How much is my business worth?

·         What is the expected timeline of the transaction?

The first three questions will be determined by the company’s financial performance as well as current market demographics. A strong industry specific sell-side advisor or investment banking advisor will help you gain a better understanding of where the value lies within the business and also help identify value that you may not know existed. The timeline of the transaction is a bit more straightforward. Below is a step-by-step transaction summary of the 4-6 month transaction process that the SchoolWise Partners team follows to facilitate the sale and maximize the value of our client’s business.

Phase 1: Market Valuation and Strategic Structuring

The first step in the process includes an in-depth analysis of the business financials along with a full scope of the operational aspects of the business. Advisors will typically provide the business owner a diligence request list where they will learn the ins-and-outs of your business. This information highlights your history, products/services, supply chain and vendor networks, customer base, sales and marketing strategies, growth potential, management structure, competitive landscape, and financial performance. This information will help your advisor effectively represent your business to potential buyers.

Leveraging the information above, your advisory to assemble a marketing package which includes a document referred to as the Confidential Information Memorandum (CIM). The CIM is an in-depth report detailing the business financials, market position, company history and achievements, corporate structure, specific market demographics and more. From the CIM, the advisor creates a one-page, high-level overview of your company that is used as a “Marketing Teaser”, to be sent to prospective buyers to generate initial interest in your company while remaining completely anonymous. These targeted buyers are required to sign and return a Non-Disclosure Agreement (NDA) prior to receiving any additional information.

Phase 2: Screening and Marketing

Most of the leg work in phase 2 will be the responsibility of your advisor. Here, your advisor will contact prospective buyers to gauge their level of interest in your business. After receiving signed NDAs from all interested parties, your advisor will distribute the CIM to provide additional information about the business and field any questions that may arise during their initial analysis. There is typically a 2-week window where potential buyers can ask questions and tour the facilities prior to making an offer. Before any tours are conducted, your advisor should confirm that the buyer is serious, qualified and has the capital available to close the transaction in a timely manner.

Phase 3: Negotiation and Basic Agreement

During stage 3, your advisor will evaluate and discuss offers or “Indications of Interest” received from a short-list of selected buyers. The goal here is to create a competitive landscape and ultimately drive up the valuation of the business. After reviewing the offers with your advisor and assessing each buyer to ensure they would be a good cultural fit, your advisor will negotiate on your behalf the purchase price and basic terms of the transaction. Once everything is in order, all parties will sign a "Letter of Intent" that lays out the key terms of the agreement, including purchase price and key legal considerations.

Phase 4: Legal and Diligence

Now that a buyer is in place, the legal and due diligence phase of the transaction is set to kick-off. Your advisor will set up a secure, virtual data room to share all the information collected during phase 1. During this phase, you can expect the buyer to conduct an in-depth analysis into all aspects of your business including financial records, human capital, customer concentration, growth potential and competitive landscape. Your advisor will act as an intermediatory, monitoring all progress to ensure the transaction timeline remains on track as well as address any questions or concerns that may arise during the buyer’s diligence process. Once all diligence has been complete, your advisor along with your legal council will work to finalize and sign the Definitive Agreements, including Purchase Agreement and Real Estate Sale Agreement (if applicable).

Phase 5: Integration and Closing

Assuming the legal and diligence phase went smoothly and all agreements are in order, the buyer will need to understand the ins-and-outs of the daily operations to ensure a smooth transition of ownership upon closing. Weekly calls will be held to discuss licensing transition, key vendor contracts and a full overview of your businesses policies and procedures. Once all documentation and communications are in order and a closing date has been set, we’ll strategize the announcement logistics and draft a letter to both parents and the staff informing them of the sale. On the day of closing, the buyer will execute the wire transfer, completing the transaction process.

If you are interested in learning more about the transaction process or a complimentary evaluation of your school(s), please reach out to one of our professionals for more information.