How to prepare for a business sale
Selling a company is not a decision to be taken lightly, or a process which can be improvised. A transaction of this calibre requires meticulous and solid planning which maximises value and minimises risk. Throughout my years of experience, I have observed that the companies which are best placed for sale are those which have fulfilled three steps: performing a detailed valuation of their assets and liabilities, clearly defining sale targets, and preparing for the due diligence from the start. I am sharing some key pointers to achieve this:
1. Conduct a detailed valuation of your assets and liabilities
The first step in any sale process is an in-depth understanding of the company´s value. This means not just in terms of accounting figures, but also identifying the assets and liabilities which may affect the transaction.
Assets and liabilities: beyond the figures
In order to conduct a full valuation, it is important to consider both tangible and intangible assets. Tangible assets, including machinery, real estate or inventories, are the most visible and easiest to value. However, intangible assets such as intellectual property, client relationships, branding and team know-how are the ones which often bring the most strategic value to a business. According to a report by KPMG, during 2024 more than 65% of total business value in Spain stemmed from intangible assets, which underlines the importance of their accurate valuation during a sale process.
In terms of liabilities, identifying financial debts and other commitments such as long-term contracts and possible litigation is essential. A precise assessment of liabilities will highlight the possible difficulties which a buyer might perceive, and help to anticipate solutions to reduce the perception of risk.
How to determine fair value
Once assets and liabilities have been identified, using valuation methods which best suit the type of business and its characteristics is key. The EBITDA multiple and Discounted Cash Flow valuation methods are two of the most common in Spain. They both offer complementary perspectives of a company´s value, and provide a solid justification of the sale price to potential buyers.
2. Define your perimeter: total or partial business sale?
Another key issue to consider is the clear definition of the transaction perimeter. This involves responding to questions such as whether the objective is a total or partial sale, or whether the seller wants the business to continue operating under its current name.
Total or partial sale: pros and cons
A total sale allows the seller to completely disengage from the business and receive the sale proceeds immediately. However, a partial sale might be a better approach if the owner wishes to retain a level of control, or some say over the future of the company. This formula, which involves selling only part of the capital, allows the entry of new shareholders who can bring added value from a financial or strategic perspective, and improve growth prospects.
Choosing between a total or partial sale will depend on the owner´s long-term objectives. In Spain, many business owners opt for a partial sale which ensures succession, particularly in the case of family companies which seek to maintain a legacy for subsequent generations, while benefitting from new capital to modernise the business.
Identifying the right buyer
Defining the right kind of buyer is equally important. A strategic buyer, who operates in the same sector, might be interested in synergies and willing to pay a premium. On the other hand, financial buyers such as investment funds are primarily focused on financial returns and business stability, and a well-prepared company with solid accounts will be more attractive for them.
3. Prepare for the due diligence from the start
A due diligence is an in-depth assessment which a buyer conducts in order to ensure that the company´s status is as promised. Being prepared for the due diligence can make the difference between a smooth transaction and one which falls through at the last moment.
The importance of transparency
During the due diligence, buyers will assess the business´ entire financial, legal and operational status. It is therefore essential to gather and organise all the necessary documentation before the sale starts. This includes audited accounts, key contracts, inventories, IP registries and any relevant information relating to litigation or ongoing risks. A growing trend during 2024 has been the digitisation of business data and the use of virtual data rooms, which allow greater transparency and facilitate access to information by buyers.
Anticipate possible issues
In my experience, one of the greatest risks for a successful sale is the emergence of unexpected problems during the due diligence. Buyers want to minimise risks, and any sign of a lack of transparency or incomplete information can make them withdraw or try to renegotiate the purchase price. If you identify possible issues in advance, you will be able to solve them before the buyer discovers them, which generates trust and increases the likelihood of a successful agreement.
For example, if the company has unsecured debts or unresolved legal risks, it is essential to work on solutions to mitigate such risks before putting the business on the market. This proactive approach requires time and resources, but it usually translates into a considerable increase in the value perceived by buyers, and leads to smoother negotiations.
At Confianz, our aim is to assist clients through every stage of the sale process, from the initial valuation to the due diligence and final negotiation. We work hand-in-hand with businesses to maximise the value of each transaction and ensure that everything is up to scratch so that they can generate trust in buyers.
Our experience in restructurings, mergers and acquisitions, and the implementation of specific analysis techniques allow us to see opportunities which make all the difference and minimise the risks which might jeopardise a successful sale.
