Understand the Sale Process to Reach a Successful Closing
Introduction
Selling a closely held business involves a complex, multi-phase process. For those unfamiliar with transactions, understanding the flow of activities, required documentation, and key decisions along the way is crucial. This guide aims to provide clarity on each step, from preparing your business for the market to finalizing the transaction. Closely held business owners often ask about the differences between hiring a corporate finance advisor and a business broker. Corporate finance advisors tend to manage more complex transactions, leveraging their networks and experience to maximize value, while business brokers may be more suited to smaller, less intricate deals. Corporate finance advisors also provide support throughout the process, advising on negotiations, structuring, and guiding business owners through rigorous buyer vetting.
Step 1: Prepare for Market
Develop Transaction Strategy and Timeline
The first stage in the sale process is preparation, which focuses on getting your business “market-ready.” This involves developing a detailed transaction strategy that aligns with your objectives, establishing a timeline, and creating all necessary financial and marketing materials. The first step is setting a transaction strategy, where you define the type of buyers to target, the ideal sale structure, and your financial goals. This strategy includes a timeline that outlines each step in the process, ensuring all necessary preparations are completed methodically.
Information Request List and Dataroom Organization
With a strategy in place, the next focus is on gathering and organizing all documentation required to represent your business accurately to potential buyers. To achieve this, an information request list is created, outlining the key documents such as financial statements, contracts, legal documents, and operational reports. This list ensures that the process of document collection is organized and thorough. Once the information is gathered, it is uploaded into a secure virtual data room, allowing potential buyers controlled access to sensitive data during their evaluation.
Preparing Key Transaction Materials
The Confidential Information Memorandum (CIM) is another critical piece prepared at this stage. The CIM is a comprehensive document that introduces potential buyers to your business, detailing financial performance, operations, and future growth opportunities. It serves as the primary tool for conveying your business’s value proposition to potential acquirers. Concurrently, a list of potential buyers is created, categorized into strategic buyers, financial buyers, and individual investors based on each buyer’s fit and potential interest in your business.
In addition to the CIM, other essential marketing materials are developed. These include a teaser, which is a brief, anonymous summary of your business sent to potential buyers as an initial introduction, and a process letter, which outlines the structure and expectations of the sale process. An NDA (Non-Disclosure Agreement) is also drafted to ensure confidentiality when sharing sensitive information with prospective buyers.
Corporate Finance Advisor Deliverables
Transaction strategy and timeline
Information request list
Organized data room
Historical and projected financials
Confidential Information Memorandum (CIM)
Buyer list
Teaser, NDA and process letter
Step 2: Initiate Process
Contact Potential Buyers
Once the preparation is complete, the sale process begins in earnest with outreach to potential buyers. This stage includes contacting potential buyers from the curated list and initiating discussions. Corporate finance advisors use their networks and contacts to connect with buyers and gauge their initial interest. When a buyer expresses interest, they are then qualified based on their financial capacity, strategic alignment, and potential fit with your business. Buyers who pass this initial screen are asked to sign an NDA before being granted access to the CIM.
Follow-Up Calls and IOI Deadline
After sharing the CIM, follow-up discussions are held to answer buyer questions and provide additional insights into the business. These discussions are crucial for sustaining buyer interest and helping them deliver an informed Indication of Interest (IOI). In addition to verbal engagement, a structured timeline is established to ensure all buyers submit their offers by a specific date.
Receive and Evaluate Indications of Interest
Buyers submit IOIs, which are preliminary offers that include a proposed valuation range and potential transaction structure. These IOIs serve as a gauge of each buyer’s interest level and valuation expectations. Upon receiving multiple IOIs, the next step is to evaluate these offers and select a shortlist of qualified bidders for in-depth site visits and further discussions.
Corporate Finance Advisor Deliverables
Executed NDAs and released CIMs to qualified buyers
Collection of IOIs
IOI comparison report
Selected list of bidders for site visits
Step 3: Select Bidder
Coordinate Buyer Meetings and Site Visits
With a shortlist of serious bidders, the focus now shifts to selecting a preferred buyer. This stage involves coordinating meetings and site visits, where selected buyers meet the management team and tour the business facilities. These meetings are essential for both the buyer and seller to build trust and gain a deeper understanding of each other’s expectations. During this time, additional information is shared via the data room as needed, giving buyers a clearer picture of the company’s financial and operational landscape.
Circulate LOI Process Letter
A critical document at this point is the LOI process letter, which outlines the expectations for submitting Letters of Intent (LOIs) and sets the timeline for doing so. LOIs are more formal than IOIs and typically include detailed terms and conditions. Each LOI specifies the purchase price, proposed structure, and key terms of the acquisition, though they remain largely non-binding.
Receive and Evaluate Letters of Intent
After receiving the LOIs, they are evaluated based on various factors, including the financial offer, cultural fit, and terms related to closing conditions or post-closing requirements. An LOI comparison report is delivered by the corporate finance advisor to compare offers in a structured way, ultimately leading to the selection of a preferred bidder. The selected buyer and seller then sign an LOI, signifying mutual commitment to proceed with the transaction while still leaving room for final negotiation and due diligence.
Corporate Finance Advisor Deliverables
Site visit logistics packages
LOI process letter
LOI comparison report
Signed LOI
Step 4: Execute Transaction
Facilitate Due Diligence Requests
The final stage, known as the execution period, is where the transaction moves towards closing. During this period, the buyer performs confirmatory due diligence, a comprehensive review to validate financials, operations, and other aspects of the business. This due diligence is more in-depth than previous steps, requiring frequent communication and additional documentation from the seller.
Coordinate Site Visits and Finalize Structure
During due diligence, the buyer and seller may engage in additional meetings to discuss outstanding questions, further build rapport, and address final details. During this period, both parties finalize the structure and terms of the transaction with the help of legal and financial advisors. Draft agreements, known as definitive agreements, are prepared, covering all facets of the sale, from the purchase price to representations, warranties, and covenants.
Closing
As negotiations progress, any outstanding issues are resolved to ensure both parties are in alignment. Once all terms are agreed upon, the deal moves to the closing stage, where all documents are signed, and ownership is transferred. Closing represents the culmination of the sale process, concluding a rigorous but rewarding journey.
Corporate Finance Advisor Deliverables
Facilitate due diligence requests
Draft definitive agreements
Finalize transaction structure and terms
Resolutions of outstanding issues leading to closing
Signed purchase agreement and funds flow
Conclusion
This guide outlines the core stages of a typical sale process for closely held businesses. Each stage, document, and each decision-point is critical to maximizing value and achieving a successful transaction. By partnering with experienced corporate finance advisors, business owners can leverage the expertise, networks, and structured processes necessary to navigate these steps efficiently and effectively. In contrast, business brokers may be suitable for simpler transactions, often focusing on connecting with individual buyers but without the same depth of service and strategic oversight.