Selling a business can feel like a slog and a sprint all at the same time. The natural momentum of a deal may start out slow, then pick up in pace and proceed full steam ahead, like a bullet train traveling at top speed. For the seller, it can feel like nine or so months of nonstop pressure, negotiations and stress until the figurative ink is dry on the transaction documents. But there are small moments in time, many of which come during and between the four phases of a sale, which we have discussed previously here and here, where sellers can “take a breath” before diving back into the next stage of the deal.
In other words, the idea is that as sellers get through certain phases of a transaction, they can take a small breather once they have reached a new “plateau.” In fact, these moments might be referred to as “plateau moments,” because they are like short transitions before going on to the next challenge of a new phase in the sale, almost like “leveling up” from one stage to the next in a video game. Reaching these “plateau moments” also presumes the sale process is going well (or the periodic roadblocks have been navigated) — meaning that any current complications that could potentially derail the deal have been addressed.
of these “plateau moments” might include:
- Completing deal preparation: Includes preparation of the confidential information memorandum (“CIM”), developing a marketing plan, and building the buyer list
- Receiving Indications of Interest (“IOIs”) (that are in an acceptable range to accomplish the owner’s objectives)
- Completing management presentations: after these have been completed, the seller can take a breath and work on setting up their virtual data room (“VDR”) to help facilitate buyers’ due diligence while buyers prepare their Letters of Intent (“LOIs”)
- Receiving Letters of Intent (“LOIs”) (that are in an acceptable range)
- Executing an LOI
- Getting through accounting due diligence (assuming that it goes well)
- Receiving the first draft of the APA or SPA. These agreements signal the tone of the negotiations from that point on – more specifically, is the APA/SPA a relatively balanced document subject to negotiation around the fringes, or is it entirely one-sided for the benefit of the buyer? The former is a “plateau moment,” while the latter at least lets the owner and their advisors know what to expect as documentation proceeds.
- Working through major deal points (leaving plenty of opportunity for give and take on both the buyer’s and seller’s part)
- Negotiating the working capital target so that neither the buyer nor the seller “makes money” on this portion of the transaction. This stage of the deal can be particularly sensitive and painful due to the delicate nature of the negotiations, particularly if the seller is not attuned to the working capital concept — so the relief on both sides of the table is often palpable when this phase is over, making it a logical “plateau moment.”
- Closing: Once the deal is done, it is done. As such, this is an obvious point where the seller can pause, breathe a huge sigh of relief, take a “victory lap,” reminisce about the various battles leading up to the closing, and count their money!
There are natural points in the sale process where sellers are not always preparing, pitching, processing or negotiating. These are often after the seller has scaled a new plateau in a deal, as described above. We do not mean to say that sellers can ever “relax” until the transaction has closed; in fact, it is near impossible to fully relax until the deal closes. As the seller traverses each stage of the deal successfully, however, it is like receiving affirmation that the transaction is moving in the right direction and they can confidently proceed to the next phase. Certainly the deal can still take a backward turn from time-to-time; however, scaling the most recent stage of the deal can provide some comfort that the odds are increasing that the transaction will close successfully.
For example, we recently received IOIs for a transaction in which the initial batch of IOIs was underwhelming. However, as we received additional letters with improved terms, the additional letters confirmed everyone’s valuation expectations. We also knew the company’s management team was strong and we believed in their ability to execute a successful sale. As a result, once we got through the IOI phase, we knew that we had overcome that particular challenge, reached a new plateau in the transaction, and the seller could feel good about going on to the next stage of the deal.
When it comes to “plateau moments” in the sale process, we often say, “we are on the five-yard line, going the long way.” But these small moments are the moments that let the seller know that they can feel confident about moving forward with the transaction, and that with each confirmatory stage in the process, they are one step closer to a successful closing — approaching midfield, crossing the fifty-yard line, entering the “red zone,” and ultimately scoring a touchdown, aka, closing the transaction. Simply put, getting to the end of each phase of a deal is like winning a battle, and each battle won means the seller is that much closer to declaring victory when it comes to achieving their objectives.
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