Guide
How to sell a company
Selling a company usually takes nine to twelve months and runs through nine stages. The first three happen before any buyer is involved, and most of the price is settled there. This guide describes the process as it runs for a business worth between PLN 10 and 50 million.
This is not a do-it-yourself manual. Selling without an adviser is possible and sometimes sensible, but it helps to know what you are taking on. There is a section on cost further down.
Start with whether the company is ready
Most owners open with “how much will I get”. A better opening question is whether the business can be sold at all, in reasonable time and for reasonable money. A buyer is not paying for your history. They are paying for future cash flows that can be predicted without you in the middle of them.
Four areas usually settle it.
Dependence on the owner
- Who talks to the key customers
- Who makes the buying decisions
- What happens if you vanish for a quarter
- Whether anyone can take the wheel
Quality of the numbers
- Whether the accounts are audited
- Whether private costs can be identified
- Whether margin per customer is visible
- Whether forecasts have any basis
Revenue concentration
- What the largest customer contributes
- Whether contracts are written and long term
- Whether they carry change of control clauses
- What customer churn looks like
Formal order
- Who actually holds the shares
- Whether property sits inside the company
- Whether there are disputes or off-balance items
- Whether trademarks and systems belong to the firm
If three of those four columns look bad, a year of preparation is worth more than an immediate start. Making the company work without its owner moves the multiple further than the best negotiator at the table.
Two to three months of preparation is the cheapest stage of the whole process and the one that changes its outcome most.
How a process runs
Nine stages, from decision to payment
01
The decision and the goal
Whether you are selling all of it or a stake, whether you stay through a transition, and what number actually closes the subject. Nothing else has a reference point without it.
02
Valuation and normalising the result
Adjusted EBITDA, net debt and normal working capital. Out of that comes the range in which a transaction makes sense, and a list of things to fix.
03
Teaser and memorandum
The teaser is one page without the company name. The memorandum runs to dozens of pages and goes out after a confidentiality agreement. They decide who replies at all.
04
The buyer list and first contact
We build a list of trade buyers, funds and individual buyers, then call each one separately. Nobody learns about the process from an advertisement.
05
Indicative offers
Non-binding offers with a price range and assumptions. This is where you see who understands the business and who copied the numbers and added a multiple found online.
06
Letter of intent and exclusivity
We pick one buyer, who usually gets exclusivity for the review. Power shifts to their side from that moment, so the boundaries are set now.
07
Due diligence
The buyer and their advisers go through finances, contracts, tax, people and risk. For the team this is the most exhausting part of the whole process.
08
Negotiating the agreement
Price is one parameter among many. The rest is warranties, liability caps, escrow, earn-out, non-compete and the pricing mechanism. A few per cent of value goes missing here.
09
Signing and closing
Usually two different days. In between, conditions are satisfied: consents, releases of security, sometimes merger clearance. The money moves at closing.
Why it takes nine months rather than three
The first three stages sit entirely on your side of the table and take two to three months. They can be compressed. Every week saved there comes back during the review, when the buyer finds what nobody wrote down.
Due diligence takes longest. Six weeks is a good result with orderly documents, twelve is normal when documents are assembled as the questions arrive. The reason for delay is rarely dramatic: a missing annex, an out-of-date register, a gap between the books and how the company actually works.
Processes shorter than six months usually share one of two features. Either the buyer was known beforehand and talks had run for months, or the owner accepted the first offer without competition. The second route is fast and expensive.
The other side
Who buys companies in this bracket
Who sits opposite decides not only the price but what is left of the company.
A good process puts several buyers from different categories at the table at once. Not to start a bidding war, but because that is the only way to learn what the company is worth to the market rather than to one interested party.
Trade buyer
Buys for synergies and pays most when they genuinely need them. Knows the sector, so runs the toughest review. The company usually dissolves into their structure.
Private equity fund
A four to seven year horizon, often with debt behind it. Wants you to stay or to build a successor. Predictable process, heavy on procedure.
Search fund or manager
Buys one company and runs it. Cares about continuity and the team. Slower to start because the funding is assembled, but a real buyer.
Management or family
A buyout or succession. Price usually below market, payment spread over time, and the least risk to the culture of the business.
What actually decides the price
The headline price is a multiple applied to normalised EBITDA. The multiple depends on sector, size, growth and risk. Between the indicative offer and the money arriving, though, sit several mechanisms owners tend to learn about too late.
- Net debt. Debt is deducted from enterprise value and cash is added. A buyer counts things here you do not think of as debt: leases, unpaid bonuses, undeclared dividends, provisions for disputes.
- Working capital. The parties agree a normal level and the difference at closing adjusts the price. It is the most common reason for an argument about money after the deal.
- Earn-out. Part of the price tied to results after the sale. Sometimes an honest bridge across a gap in expectations, sometimes a way of moving all the risk onto the seller.
- Escrow. Part of the money held against claims, usually for a year or two.
- Price chipping. The buyer returns with a list of findings and a lower number. Resistance to that is built before the process, not during it.
Which is why “I sold the company for twenty million” almost never means twenty million arrived that day. Run it on your own figures in the calculator.
Stage eight, negotiating the agreement. The price is already agreed, and this is still where a few per cent of value usually disappears.
What it costs to sell a company
The bill covers the transaction adviser, legal work, tax advice on the structure, the data room and sometimes a vendor review. An adviser normally works on a monthly fee plus a success fee on transaction value, payable at closing.
We set that out separately, including what exactly you pay for and when an advised process does not pay for itself: what an M&A adviser costs.
Mistakes that cost the most
Mistake 1
Talking unprepared
The owner answers every question honestly and after two meetings the buyer knows more than they should at that stage.
Mistake 2
One buyer
Without an alternative there is no negotiation. There is accepting terms and calling it a conversation.
Mistake 3
The wrong moment
After a weak year, after losing a large customer, in a hurry caused by health or a fight between shareholders.
Mistake 4
Disorder in the paperwork
Every missing annex is an argument for a lower price or for wider warranties in the agreement.
Mistake 5
Treating the LOI as a formality
It sets the rules of the game for the next six months. Signed in a hurry, it can cost more than the rest of the negotiation.
Mistake 6
No plan for afterwards
The owner closes the deal and three months later has no idea what to do with themselves. This is not a soft problem. It can stop a process a week before signing.
What you can do right now
If you are thinking about a sale within a year or two, three things are worth doing whoever you end up working with. None requires deciding to sell, and each raises the value of the company even if you stay its owner.
Work out your EBITDA
Operating profit plus depreciation, cleaned of costs a new owner will not carry. Every adjustment has to be provable on invoices.
List what runs through you
Customers, decisions, system passwords, knowledge nobody wrote down. That list is what has to be dismantled, and it is also what holds the multiple down.
Put the contracts in order
Especially with your largest customers, and especially the ones agreed verbally or by email. They will surface in the review anyway, only then they will cost something.
Frequently asked
About selling a company, briefly.
How long does it take to sell a company?
Usually nine to twelve months from decision to payment. Two to three months go on preparation, another two to three on finding buyers, and the rest on due diligence and negotiating the agreement.
Can I sell without an adviser?
Yes. It makes sense when the buyer is known, the price is agreed and the transaction is simple. In a process with several buyers and a full review, an owner running it alone usually loses more on terms than they save on the fee.
When do you tell the employees?
In most processes just before signing or just after. Earlier news travels outside the company, and a process running nine months produces uncertainty for all of that time with nothing to offset it.
What tax will I pay on the sale?
It depends on whether you sell shares or assets and on the legal form of the business. The gap between the routes can be wider than the gap in price, which is why the structure is settled before talks begin. This is not tax advice: the specific route needs confirming with a tax adviser.
See also
- Calculator showing how much of the price reaches your account
- Sale readiness test, fifteen questions in three minutes
- M&A glossary, 72 terms that come up during a process
- Red Flags checklist, twelve areas a buyer examines