Overview of Major Phases in a Company Exit - The Seller’s Perspective: Phase 1: The Preparation Process

By Doug Kahn & Dan Mondor, Co-Founders and Managing Directors

Exiting a business is a profound event in a company's lifecycle. Whether through a sale, merger, or other transition, a successful exit demands careful planning, strategic decision-making, and diligent execution. For sellers, the process follows several well-defined phases: preparation, marketing the business, buyer selection, due diligence, negotiation, and closing. The preparation phase is a critical step in the overall process, setting the foundation for a smooth and lucrative exit.

The Preparation Phase: Setting the Stage for Success

Preparation is critical to a successful exit. This phase involves clarifying objectives, conducting an internal assessment, enlisting professional advisors, determining valuation, and assembling the necessary documentation. Sellers must invest significant time and effort during this stage to ensure their business is attractive to potential buyers and commands the best possible price.

Defining Objectives

Defining the seller's objectives is the first step in preparing for an exit. A clear understanding of these goals will guide every subsequent decision and strategy. Key questions to address include:

Financial Goals: What is the desired economic outcome from the sale? Are there minimum thresholds that must be met?

Timeline: When does the seller want or need to exit? Is there flexibility in timing?

Legacy and Continuity: Do you have preferences regarding the company’s future direction or the retention of employees and customers?

Post-Exit Involvement: Does the seller wish to remain involved with the company in some capacity post-transaction, such as through a consulting role or equity stake?

By articulating these objectives early, sellers can better align their preparation efforts with the desired outcome.

Conducting an Internal Assessment

A thorough company assessment is essential to understand its strengths, weaknesses, opportunities, and threats (SWOT). This evaluation provides a clear picture of the business’s current state and helps identify areas for improvement before bringing it to market.

Strengths: Identify competitive advantages, such as proprietary technology, strong brand reputation, loyal customer base, or robust financial performance.

Weaknesses: Pinpoint internal challenges that may reduce buyer confidence, such as outdated processes, key-person dependencies, or financial inefficiencies.

Opportunities: Highlight potential growth areas, such as untapped markets, new product lines, or strategic partnerships.

Threats: Acknowledge external risks, such as competitive pressures, regulatory changes, or economic downturns, and develop strategies to mitigate them.

The insights gained from a SWOT analysis can guide improvements, making the business more attractive and defensible during valuation and negotiation.

Identifying Professional Advisors

Navigating a company exit is complex, requiring expertise in various domains. Sellers should assemble a team of experienced advisors to guide them through the process that should include the following:

Advisory services:  Provide guidance and leadership to implement the improvements needed to maximize valuation identified in the SWOT assessment.  

Mergers and Acquisitions (M&A) Advisors: Help market the business, identify potential buyers, and negotiate terms.

Financial Advisors: Assist with valuation, tax planning, and investment strategies for the proceeds of the sale.

Legal Counsel: Ensure compliance with legal and regulatory requirements, draft and review contracts, and manage intellectual property concerns.

Accountants: Provide accurate financial statements and assist with due diligence preparation.

Engaging the right advisors early will save time, reduce risk, and maximize the value of the exit.

Determining Valuation

Establishing a realistic and defensible valuation is critical. Overvaluing the company can deter potential buyers, while undervaluing it may leave money on the table. Sellers should work with financial advisors or valuation experts to determine the company’s worth based on:

Historical and Projected Financial Performance: Analyze revenue growth, profitability, cash flow, and other key financial metrics.

Market Comparables: Assess the valuations of similar companies that have recently been sold in the industry.

Asset-Based Valuation: Consider the value of tangible and intangible assets, such as equipment, real estate, intellectual property, and goodwill.

Strategic Value: Highlight unique aspects of the business that make it particularly valuable to specific buyers, such as market position or synergies.

A detailed and transparent valuation report helps set a fair asking price and builds buyer confidence.

Preparing Documentation

Comprehensive and accurate documentation is essential to presenting the business professionally and expediting the due diligence process. Key documents to prepare include:

Financial Statements: Audited financials for the past 3-5 years, including income statements, balance sheets, and cash flow statements.

Operational Data: Detailed information on the company’s operations, such as production processes, supply chain, and key performance indicators.

Legal and Regulatory Compliance: Records of business licenses, intellectual property registrations, contracts, and any outstanding legal matters.

Marketing Materials: A well-crafted pitch deck or CIM highlighting the company’s value proposition, market position, and growth opportunities.

The CIM, in particular, serves as the primary marketing document for potential buyers, summarizing the company’s key attributes and setting the tone for further discussions.

The Benefits of a Robust Preparation Phase

Investing in the preparation phase yields significant benefits:

Attracting Quality Buyers: A well-prepared business with clear documentation and defensible valuation attracts serious buyers, increasing the likelihood of competitive offers.

Streamlining Due Diligence: Comprehensive preparation reduces delays and surprises during the buyer’s due diligence process.

Maximizing Value: Addressing weaknesses and highlighting strengths before going to market enhances the company's perceived value.

Mitigating Risk: Identifying and resolving potential issues upfront minimizes the risk of deal failure or post-sale disputes.

Conclusion

New Port Partners has substantial expertise in the preparation phase component of the M&A process.  It is a significant and foundational step in a successful company exit. By defining objectives, conducting a thorough internal assessment, engaging professional advisors, determining a realistic valuation, and preparing comprehensive documentation, sellers can position their business for a smooth and profitable transition. While preparation requires significant time and effort, the payoff in terms of increased buyer confidence and maximized value makes it an essential investment in the overall exit strategy.

The preparation phase is the first, critical step in a company’s journey to execute a successful exit. Future articles in this series will focus on marketing and target identification, initial engagement with buyers, the negotiation that ultimately leads to beneficial LOI (Letter of Intent), due diligence, working the final negotiation and signed agreement, closing the transaction, and driving the post-sale transition.

New Port Partners (NPP) specializes in business transformation and performance improvement consulting, offering services to enhance operational efficiency, profitability, and shareholder value. With expertise in AI deployment, crisis management, and strategic assessments, NPP assists companies in optimizing financial and operational performance through customized roadmaps. They provide end-to-end support from strategy through implementation, with a proven track record of delivering strong returns for public and private equity-backed firms. NPP’s focus on targeted, high-ROI use cases positions clients for sustainable growth and improved competitiveness.

Founded by C-Suite executives Dan Mondor, Robert Barbieri, and Doug Kahn, New Port Partners has extensive leadership experience with Fortune 500, NASDAQ & privately held companies. 

For more information and to schedule a no-obligation consultation, visit New Port Partners at www.newportpartnersgroup.com.