How to Sell a Company and Maximise Its Value
Selling a company is not simply about finding a buyer willing to pay a certain price.
A successful transaction begins long before that.
In fact, one of the most important decisions is choosing the right time to sell.
Ideally, a company should go to market while it is still on an upward trajectory, with positive performance and clear growth potential. The buyer must be able to identify not only the value already present in the business, but also the future growth opportunities it has yet to realise.
Waiting too long can work against the company.
If the business has reached maturity and offers limited additional growth potential, the investor will have fewer opportunities to create value following the acquisition and, consequently, the transaction may become less attractive.
That is why selling a company successfully starts with choosing the right time to sell.
Why the Financial Year of the Sale Matters More Than You Think
Choosing the right time to sell is not enough.
It is also essential for the company to deliver strong financial performance during the financial year in which the transaction takes place.
In M&A, this recent business performance is commonly referred to as current trading: in other words, how the company is actually performing during the months in which its sale is being negotiated.
And it is a critical factor.
An M&A transaction can take between six and eight months to complete. Throughout this period, the buyer will closely monitor the company’s performance and compare actual results against the forecasts set out in the business plan.
If current trading is positive and the company meets or exceeds its targets, the seller’s credibility increases and their negotiating position strengthens.
If performance falls short of expectations, concerns begin to emerge.
If a company is failing to meet its targets during the year of the sale, the investor may begin to question the reliability of its forecasts for the next one, two or three years.
As a result, any deviation from sales, EBITDA or cash generation targets not only affects the company’s financial performance for the year, but can also have a direct impact on buyer confidence, valuation and the terms of the transaction.
That is why entering the sale process with a growing company that is meeting its targets and generating cash is one of the most important factors in protecting and maximising value for the seller.
The final price depends on more than just valuation
Another factor that can have a significant impact on the amount ultimately received by the shareholder is the completion mechanism agreed as part of the transaction.
Agreeing on the company’s valuation is not enough.
It is also necessary to determine the date on which that value is measured and what happens to the value generated by the business up until the transaction is completed.
There are two main mechanisms.
1. Lockbox
Under a lockbox mechanism, a reference accounting date is established before the actual completion date of the transaction.
The price is determined based on the company’s financial position at that date.
From that point until completion, the value generated by the business effectively benefits the buyer.
For this reason, if the company is performing well in terms of current trading and continues to generate cash during those months, it is particularly important for the seller to negotiate appropriate compensation for that period.
This compensation is commonly known as a ticking fee.
It can be calculated based on the expected cash generation between the lockbox date and completion of the transaction and, depending on the size of the company and the length of the process, can represent a significant amount.
This is therefore not merely a technical consideration: it can have a direct impact on the final price received by the seller.
One of the main advantages of the lockbox mechanism is that it provides greater price certainty and reduces the likelihood of disputes following completion.
2. Completion accounts
The second alternative is completion accounts.
Under this mechanism, the final price is calculated based on the company’s financial position at the actual completion date of the transaction.
From a financial perspective, this can be considered a more accurate mechanism, as it provides a clearer picture of the debt, cash and other financial figures at the time of the sale.
However, it also introduces greater uncertainty.
Following completion, an additional review period is usually required — which can last two or three months — to verify that the figures used to calculate the price were correct.
If any discrepancies arise, the price adjustment mechanisms established in the sale agreement are applied.
Therefore, completion accounts can offer greater financial accuracy, but they also carry a higher risk of price adjustments and disputes following completion.
Lockbox or completion accounts?
There is no single answer that applies to every transaction.
The choice will depend on the company’s performance, the quality of its financial information, current trading, the relative negotiating positions of the parties and the specific characteristics of the transaction.
At CONFIANZ, we generally favour lockbox structures when the circumstances of the transaction allow.
Although this mechanism may initially appear less accurate than completion accounts, it provides greater legal and financial certainty and helps avoid many of the disputes that can arise following completion.
However, when the business is performing well, the lockbox mechanism should be accompanied by appropriate negotiation of the ticking fee or another form of compensation for the seller.
A significant portion of the transaction’s value may depend on this.
Preparing the company before the sale
Maximising the value of a company is not simply about negotiating effectively when an offer comes in.
It depends on properly preparing the company for sale before going to market.
Choosing a time when the business still has growth potential.
Entering the sale process with a solid and credible business plan.
Maintaining strong current trading throughout the months of negotiation.
Meeting the targets communicated to the buyer.
And negotiating technical aspects effectively — such as the completion mechanism or ticking fee — which can ultimately have a significant financial impact.
In an M&A transaction, every decision matters.
Because there is an important difference between selling a company and selling it successfully.
And thorough preparation, combined with experienced negotiation, can be crucial in protecting and maximising the value that shareholders have built over the years.
