The Traditional Sell-Side M&A Process
The Traditional Sell-Side M&A Process involves a series of steps, whereby the business is actively marketed to potential buyers, and each buyer must bid competitively to remain in the process. It is sometimes referred to as a competitive auction. The typical sell-side process takes 6-12 months and takes a major commitment by the seller. It is most suited for businesses that are highly marketable and where the best price is one of the owner(s) highest priorities.
Preliminary Marketing
A Teaser is sent to client-approved potential buyers. If interested, the potential buyer will execute a Non-Disclosure Agreement (NDA) and receive the Confidential Information Memorandum (CIM), followed by Q&A with the seller’s representative deal team.
Initial Bids
Parties wishing to proceed in the competitive process are asked to submit initial bids often referred to as an Indication of Interest (IOI) or an Expression of Interest (EOI). Further high-level Q&As are scheduled with buyers and the seller’s representative deal team.
Management Meetings
IOI’s are reviewed by the deal team and client to select parties that warrant meetings with Management. The deal team works with management to prepare a management presentation that provides additional insight on the business for buyers. Selected parties are given further information via a Virtual Data Room (VDR).
Letter of Intent
Once potential buyers have met with Management, they are given more information via the VDR and continue to conduct their due diligence. Interested parties are invited to submit a non-binding Letter of Intent (LOI), outlining key terms of the proposed transaction. The deal team and client negotiate with the top parties to finalize an LOI with the best candidate.
Definitive Agreements
Once the major deal terms are agreed to in the LOI, the buyer candidate is given an exclusive period to negotiate a definitive Purchase and Sale Agreement (PSA), complete their due diligence (eg: environmental, legal, financial), negotiate other ancillary agreements, such as employment agreements, leases, no-competes, etc. and to arrange financing.
Financing and Close
After the PSA is executed, final arrangements are made for financing with banks/lenders or other investors. A closing agenda outlines the process for buyer loan repayments, the flow of funds, etc. Once both buyer and seller closing conditions are met, the deal is closed and the transaction is consummated.
The Aligned IQ Difference for Business Sellers
No Engagement of Success Fees
One common concern facing business sellers in the lower-middle market with the traditional M&A process are the upfront engagement fees, monthly retainers, and to some extent, the success fees (if a successful transaction is consummated). Most Investment Bank engagements have a “tail period” in which the Success Fee is payable, even after the process has terminated. Sellers must be committed to selling the business before beginning the process or will end up wasting a lot of money and time.
Aligned IQ is free for sellers.
Less Time Commitment with no Defined Timeline
The traditional sell-side process involves a lot of premarket preparations. The dataroom must be built and kept up to date, the Confidential Information Memorandum (CIM) and Teaser must be prepared. Even with top- quality support, either internally or externally with an M&A Advisor or Investment Bank, it takes a lot of time from management.
Aligned IQ allows you to work on your schedule. Of course, it will be a lot of work when and if direct negotiations begin with a potential buyer, but the time commitment upfront is minimized.
Lower risk of Confidentiality Breach
While maintaining confidentiality during any traditional sell-side process is important, the broader the marketing process (i.e. the greater number of potential buyers that receive a Teaser), the higher the probability that information about a potential sale is leaked to the market. The last thing you want is to have employees, customers, and suppliers spooked about a potential sale of the business. Industry participants are sometimes able to guess the identity of potential sellers based on the Teaser as well.
With Aligned IQ you do not have a Teaser that is circulated or distributed, lowering the chances that any confidential and sensitive information is leaked.
The Aligned IQ Difference for Business Buyers
Proprietary and Semi-Proprietary Deals
Business sellers on Aligned IQ are looking for the right relationship as a starting point with potential buyers and put significant value on the strategic fit for their business, their employees, customers, and suppliers. Sellers are not typically shopping the business to the highest bidder.
This allows Aligned IQ buyers to build a relationship and explore the mutual fit as a first step.
Mutually Agreed upon Timeline
Buyers and sellers work on a mutually agreed upon timeline, unlike a competitive process with bid and LOI submission deadlines, close dates, etc.
Sellers are not in a rush to complete a deal and can often accommodate the buyers’ priorities.
Showcase and Demonstrate your Values and Capabilities
There is very little room for parties without a pre-existing relationship to explore the mutual fit through a traditional sell-side M&A Process.
Aligned IQ allows you to demonstrate your capabilities and experiences and “sell the seller” on why you are the right buyer.