There are many pitfalls and things to watch out for when embarking on the process of selling a company. Admincontrol has supplied virtual data rooms and provided advice on approximately 1000 due diligence processes in the last year alone.
Here are five best-practice recommendations for a successful divestment process:1.
1.Planning, planning, planning
Due diligence, i.e. an assessment of the business, is a critical key component of corporate restructuring and divestment. Typically, a buyer will give an initial indication of the price he is willing to offer for the company. If the price is attractive enough, due diligence will be performed, in which the buyer seeks to identify significant risks or failings. This is the process that determines the final valuation of the company.
Due diligence can be both time-consuming and challenging, since the company must be prepared to disclose everything from customer contacts to bonus agreements, patent certificates and much else besides. The process may be imposed without much warning, and often on top of day-to-day operations and activities.
You need to make sufficient time for both advance planning and the actual process itself. Arrange for business as usual to continue undisrupted; if the sale fails mid-process, success is harder to achieve.
It is also important to carefully consider who is going to be involved. In order to cause the least possible disruption in the organisation, some companies decide to do much of the work outside normal office hours. This makes it essential that the key personnel have good control and access to up-to-date documentation before they start.
2.Start early and invest in a pre-due diligence
Although divestment processes can arrive unannounced, it is increasingly common for changes of ownership and restructuring to be part of the company’s long-term strategy and business plan. So it makes sense to be prepared before you are plunged into the project. Known as ‘pre-due diligence’, this is much about defining a dependable structure for business-critical information and documents.
Good preparation is essential for a proper presentation of the company. The structure and the materials presented must answer and document the interested parties’ questions.
Many businesses are aware of the intention to change owners within a few years. For others, there may be different strategic reasons why a change of ownership may be imminent. A pre-due diligence process can help provide a pre-prepared, comprehensive overview of the documentation entailed. Many enterprises also make use of a vendor due diligence process, in which consultants review structures, documents and other key factors before the actual interested parties arrive on scene.
3. Choose the right advisors
In a corporate transaction, legal and financial advisors are key figures. They may be decisive in finding the right buyers and achieving the best possible price and terms for the company, which means it is important to choose wisely. So, set aside enough time for research, to find people with the right expertise and proper understanding of your company’s specific situation and sector, and the market in general. Choose someone specialised in M&A and due diligence, and ideally who also has experience of these processes in your sector and with comparable companies to yours. Such specialists will typically not be the same ones that you use for your normal business operations.
4.Invest in a virtual data room
Control of all relevant documents is a sound basis for both pre-due diligence and the company assessment itself. It is also important to remember that the documents will be accessible not only to the company itself, but also to external stakeholders and interested parties. This makes it crucial to put in place a secure distribution channel for these sensitive documents.
In addition to storing and structuring documents, a virtual data room‘s role is also to ensure that they can be securely shared in confidence with external parties. Efficient access control is absolutely critical once the project is under way and different parties are to be invited into the data room. When it is commercially sensitive information that is being shared, you should also have access to a log showing who are reading the documents and how long they spend reviewing the different business areas.
5. Run efficient question and answer processes
Q&A is an important part of the due diligence process. A good data room has a versatile Q&A module that makes this process simpler and far more efficient.
Functions that the Q&A module should offer:
- Option to ask questions directly linked to individual documents or folders in the data room.
- There should be an alert function that notifies interested parties when a new Q&A has been published.
- If several buyer teams are present, they must not be able to see each other’s questions.
- Option to choose who can authorise, delegate, adjust or reject questions or answers.
Wondering about which documents should be included in a due diligence process?
Check out our due diligence checklist below