DealRoom office hours with halo and paylocity
Managing Due Diligence Efficiently Sept 29 1:00 CT
Register Now!

10 Steps to Position Your Company for an Acquisition

Kison Patel
CEO and Founder of DealRoom & M&A Science
Kison Patel
CEO and Founder of DealRoom & M&A Science

Experience gained over thousands of transactions that have used DealRoom’s platform tells us that the companies that achieve the best sales valuations are almost always the ones that prepare properly.

Preparing for a sale can enhance the value of a company even if it does not end up being acquired.

The following steps will be common to all business owners, regardless of their size or industry, considering a sale of their company in the near future. Do not wait for a buyer to appear on the horizon to begin implementing them. 

How to Position Your Company for an Acquisition

  1. Conduct an internal audit
  2. Ensure that your company is systemized
  3. Clean up your balance sheet
  4. Renew your most valuable contracts
  5. Develop a 5-year strategic plan
  6. Resolve outstanding legal and tax issues
  7. Streamline your business
  8. Ensure an outstanding team is in place
  9. Draw up a list of suitable acquirers
  10. Communicate your business properly

1. Conduct an internal audit

An internal audit, when conducted thoroughly, can add significant value for any business.

The aim of the internal audit is to assess the company’s internal controls, corporate governance, and accounting systems.

Usually these audits will show up something - even if it is relatively innocuous - that will benefit your company even if an acquisition doesn’t come to pass.

It also provides reassurance to any acquirer that your company is professionally run.

2. Ensure that your company is systemized

A useful exercise for any business owner considering a sale in the months ahead is to ask themselves:

“If I had to leave this company tomorrow, how long would it maintain its current level of performance?”

Be honest with yourself here. If you believe your company would face ruin after you took a month-long break, it’s not sustainable without you. It needs to be if you want to sell your business.

Establish what could potentially go wrong, how these issues would be resolved, and draw up a list of standard operating procedures so that anybody could come in and take your place tomorrow if needed.

3. Clean up your balance sheet

‘Clean up your balance sheet’ does not mean taking unattractive assets off the balance sheet.

In fact, that’s something we would suggest you actively avoid.

Rather, it means ensuring that your balance sheet is uncluttered, has relatively low debt, has none of the out-of-date or non-performing assets that tend to dog businesses at the lower end of the market, and above all, accurately reflects your company’s current financial position.

Ongoing balance sheet management should be one of the issues that you address in your internal audit.

4. Renew your most valuable contracts

How sustainable is your business?

A good rule of thumb is to look at the five largest contracts and establish how much of your operating income is a result of those contracts.

The less you depend on any one contract for your company’s survival, the more sustainable you are.

Assuming that the top five contracts account for a sizable proportion of your company’s recurring revenues, you should seek to tie them into new long-term contracts as soon as possible, allowing potential buyers to see that they have a guaranteed future revenue stream should they acquire your company.

5. Develop a 5-year strategic plan

Your strategic plan may not be important for all investors - particularly strategic investors - but possessing one is something that will add value for your company whether you manage to find a buyer or not.

It provides you, and financial acquirers, with a roadmap of where the company is going to generate value over the next half decade.

Even buyers looking to acquire for their own strategic reasons will appreciate a business with a clear path to value generation.

Showing these opportunities can also tip the balance for a buyer who is otherwise unsure about an acquisition.

6. Resolve outstanding legal and tax issues

Make an acquisition an easy decision for a buyer by ensuring that your outstanding legal and tax issues are resolved.

When it comes to due diligence, legal and tax concerns are a typical headache that a buyer has to undergo to ensure they’re not acquiring a lemon. This is where DealRoom's diligence module can help a lot. Hundreds of companies execute their diligence using our tool.

Like most of the items on this list, it’s something you should get on top of in any case, so don’t even wait for a buyer to appear on the horizon to take this step.

7. Streamline your business

Businesses have a tendency of adding fat over time.

This could be non-core assets (see point above about cleaning up the company’s balance sheet) or product and service lines that have subsequently become redundant and used by only a few clients every year.

For example, a company may offer a product that accounts for a tiny proportion of annual revenue, and isn’t required in any meaningful way by its main customers.

Getting rid of it allows the company to focus on core products, while also steamlining its inventory.

8. Ensure an outstanding team is in place

A buyer that feels that they’ll have to replace an entire team as soon as they take over is less likely to acquire than one that looks at your team as valuable additions to their own team.

Human capital is all too often overlooked by companies preparing for a sale, who overlook the value created by this part of the business, believing it to be nothing but an operational expense.

If, instead, you have better people in all the departments than the buyer, you’re allowing them to see that their change management process will run far more smoothly than they could have hoped for.

9. Draw up a list of suitable acquirers

Most business owners have an idea of the potential buyers for their company at the top of their heads before beginning a sales process.

This list typically includes local investors and competitors.

When putting together a list, ask yourself why your company would be attractive to those buyers, how you could make it even more attractive based on those criteria, and use this information to extend the list. 

10. Communicate your business properly

Your company will need a non-confidential teaser and a sales memorandum to get the sales process going. These should attractively present the benefits of an acquisition to buyers, using accurate, up-to-date, and insightful information.

Above all, they should be clear on what they’re buying.

Think of an elevator pitch — you should be able to tell them what your business is in ten seconds.

request a demo

Experience gained over thousands of transactions that have used DealRoom’s platform tells us that the companies that achieve the best sales valuations are almost always the ones that prepare properly.

Preparing for a sale can enhance the value of a company even if it does not end up being acquired.

The following steps will be common to all business owners, regardless of their size or industry, considering a sale of their company in the near future. Do not wait for a buyer to appear on the horizon to begin implementing them. 

How to Position Your Company for an Acquisition

  1. Conduct an internal audit
  2. Ensure that your company is systemized
  3. Clean up your balance sheet
  4. Renew your most valuable contracts
  5. Develop a 5-year strategic plan
  6. Resolve outstanding legal and tax issues
  7. Streamline your business
  8. Ensure an outstanding team is in place
  9. Draw up a list of suitable acquirers
  10. Communicate your business properly

1. Conduct an internal audit

An internal audit, when conducted thoroughly, can add significant value for any business.

The aim of the internal audit is to assess the company’s internal controls, corporate governance, and accounting systems.

Usually these audits will show up something - even if it is relatively innocuous - that will benefit your company even if an acquisition doesn’t come to pass.

It also provides reassurance to any acquirer that your company is professionally run.

2. Ensure that your company is systemized

A useful exercise for any business owner considering a sale in the months ahead is to ask themselves:

“If I had to leave this company tomorrow, how long would it maintain its current level of performance?”

Be honest with yourself here. If you believe your company would face ruin after you took a month-long break, it’s not sustainable without you. It needs to be if you want to sell your business.

Establish what could potentially go wrong, how these issues would be resolved, and draw up a list of standard operating procedures so that anybody could come in and take your place tomorrow if needed.

3. Clean up your balance sheet

‘Clean up your balance sheet’ does not mean taking unattractive assets off the balance sheet.

In fact, that’s something we would suggest you actively avoid.

Rather, it means ensuring that your balance sheet is uncluttered, has relatively low debt, has none of the out-of-date or non-performing assets that tend to dog businesses at the lower end of the market, and above all, accurately reflects your company’s current financial position.

Ongoing balance sheet management should be one of the issues that you address in your internal audit.

4. Renew your most valuable contracts

How sustainable is your business?

A good rule of thumb is to look at the five largest contracts and establish how much of your operating income is a result of those contracts.

The less you depend on any one contract for your company’s survival, the more sustainable you are.

Assuming that the top five contracts account for a sizable proportion of your company’s recurring revenues, you should seek to tie them into new long-term contracts as soon as possible, allowing potential buyers to see that they have a guaranteed future revenue stream should they acquire your company.

5. Develop a 5-year strategic plan

Your strategic plan may not be important for all investors - particularly strategic investors - but possessing one is something that will add value for your company whether you manage to find a buyer or not.

It provides you, and financial acquirers, with a roadmap of where the company is going to generate value over the next half decade.

Even buyers looking to acquire for their own strategic reasons will appreciate a business with a clear path to value generation.

Showing these opportunities can also tip the balance for a buyer who is otherwise unsure about an acquisition.

6. Resolve outstanding legal and tax issues

Make an acquisition an easy decision for a buyer by ensuring that your outstanding legal and tax issues are resolved.

When it comes to due diligence, legal and tax concerns are a typical headache that a buyer has to undergo to ensure they’re not acquiring a lemon. This is where DealRoom's diligence module can help a lot. Hundreds of companies execute their diligence using our tool.

Like most of the items on this list, it’s something you should get on top of in any case, so don’t even wait for a buyer to appear on the horizon to take this step.

7. Streamline your business

Businesses have a tendency of adding fat over time.

This could be non-core assets (see point above about cleaning up the company’s balance sheet) or product and service lines that have subsequently become redundant and used by only a few clients every year.

For example, a company may offer a product that accounts for a tiny proportion of annual revenue, and isn’t required in any meaningful way by its main customers.

Getting rid of it allows the company to focus on core products, while also steamlining its inventory.

8. Ensure an outstanding team is in place

A buyer that feels that they’ll have to replace an entire team as soon as they take over is less likely to acquire than one that looks at your team as valuable additions to their own team.

Human capital is all too often overlooked by companies preparing for a sale, who overlook the value created by this part of the business, believing it to be nothing but an operational expense.

If, instead, you have better people in all the departments than the buyer, you’re allowing them to see that their change management process will run far more smoothly than they could have hoped for.

9. Draw up a list of suitable acquirers

Most business owners have an idea of the potential buyers for their company at the top of their heads before beginning a sales process.

This list typically includes local investors and competitors.

When putting together a list, ask yourself why your company would be attractive to those buyers, how you could make it even more attractive based on those criteria, and use this information to extend the list. 

10. Communicate your business properly

Your company will need a non-confidential teaser and a sales memorandum to get the sales process going. These should attractively present the benefits of an acquisition to buyers, using accurate, up-to-date, and insightful information.

Above all, they should be clear on what they’re buying.

Think of an elevator pitch — you should be able to tell them what your business is in ten seconds.

request a demo

What is DealRoom?

Join 2,000+ Forward-Thinking M&A Practitioners

Sign up to be on the M&A Science email list and receive notifications on the latest publications

Subscribe for free
Join 2,000+ forward-thinking M&A practitioners

Get weekly updates about M&A Science upcoming webinars, podcasts and events!

7
Subscribe for free
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.