Alarian provides clients with a clear understanding of M&A market conditions and strategic drivers to best meet the needs of sellers and buyers. Alarian offers strategic approaches and best-in-class processes, taking a customized, personal approach.
Sellers are more likely to achieve a stronger outcome when negotiating with multiple qualified buyers. Competition in a sale process drives up purchase price, quickens the pace and strengthens the accountability of bidders.
Step 1: Valuation, Financial Review and Analysis
Determining a reasonable valuation range is a critical step in the sale process. Prior to going to market Alarian assesses value using standard multiples of earnings or cash flow (Adjusted EBITDA), combined with its knowledge of the industry and the operational specifics of the business. Alarian reviews such industry metrics as growth rates and margins and conducts client reviews to assess concentration and other factors such as industry consolidation. We also examine operations and financial ratios against industry norms.
While the valuation provides the seller a basis for understanding company value, a strong buyer pool is the best indication of value. In the end, the price is determined in the market by potential buyers, the quality of the business presentation, and effective negotiations with buyers.
Step 2: Documentation and Marketing Materials
Taking the time needed to properly aggregate, interpret, and present a company’s financial and business history, as well as future projections, is a crucial element of the sale process. Alarian ensures that the appropriate financial adjustments such as add backs and/or one-time expenses are reflected in the depiction of the company’s financials. When potential acquirers evaluate a company, they expect the records and facts to be properly organized and documented. Alarian will create well-packaged business summaries, supporting documents, including a teaser and a Confidential Information Memorandum. All marketing material is tailored specifically to a potential buyer and presented directly by Alarian.
Alarian distributes marketing documentation that best showcases the company to the widest possible market, which may include private equity firms, family offices, offshore buyers, strategic corporate and individual investors, with the goal of creating a limited auction for your company.
Step 3: Buyer Research, Strategy and Qualification
Lower middle market companies (whose value ranges between $10M and $250M) can attract a large number of potential buyers. Some may be known by the business owner, and others by Alarian. We will review competitors, customers, strategic buyers, and private equity firms for fit and, most importantly, the capital needed to complete a transaction. Alarian pre-qualifies potential acquirers to save time and eliminate unsuitable prospective buyers. This time and labor-intensive process can determine the overall success of the transaction.
Step 4: Transaction Structure and Negotiation
The sale of a business has many important considerations for the seller. The valuation and purchase price are the major considerations. However, the right structure is crucial to a successful transaction. Alarian helps sellers understand a range of possible structures and terms, involving stock versus asset sale, earnout, financing terms, liabilities assumed by the acquirer, employment contracts, non-compete agreements, and working capital, among others.
Step 5: IOIs, LOIs, and Purchase Agreements and Closing
Buyers express interest in a company at three stages, involving separate documents: the Indication of Interest (IOI), Letter of Intent (LOI) and Purchase Agreement. The IOI is non-binding and provides the proposed terms, valuation and structure for a transaction. The LOI is a more serious signal of interest by the buyer. Once jointly executed, the seller is typically under exclusivity with that buyer, and may not meet with other potential buyers during a stated period of time. The Purchase Agreement is the definitive document outlining the terms of the sale, defining details of the transaction: legal, financial, representations, warranties, etc. Sellers should expect this part of the process to take 90 to 120 days.
Step 6: Post-Closing Issues & Business Transition
The transition period involves cooperation and communication between the seller and the buyer. Post-closing commitments often include transferring customer relationships, explaining key management and market dynamics and providing proprietary information needed to successfully operate the business. Alarian will support the seller in determining any future role.