Financial Strategy
Selling, merging or bringing in a partner
“We are thinking of selling, merging or bringing in a partner.”What owners tell us
The situation
Signs you are facing this
- A buyer or investor has asked for financials that would take weeks to assemble
- There is no agreed view of what the business is worth
- Reported earnings include items a buyer would adjust
- Founders or partners disagree on price, role or timing
The situation
Selling, merging or bringing in a partner
Driver 1
Numbers not prepared for scrutiny
Books that work day to day often fail a buyer's review.
Driver 2
Value never estimated on a consistent basis
Expectations drift because no one has tested them.
Driver 3
Dependence on the owner
Customers, relationships and decisions that sit with one person lower what a buyer will pay.
- 1
Diagnose
Establish a defensible view of value
Use more than one method and show the assumptions behind each.
- 2
Design
Prepare the numbers for scrutiny
Normalise earnings, clean up working capital and liabilities, and organise the data room.
- 3
Embed
Support the negotiation
Respond to diligence questions and test offers against the model.
- Valuation range with stated assumptions
- Normalised earnings and working capital analysis
- Sell-side data room
- Negotiation support materials
Start this week
- Normalise earnings and list one-off items
- Reconcile working capital to a clean level
- List contingent liabilities and open tax matters
- Prepare a data room index before buyers ask
Common questions
What is financial due diligence?
A review of a business's financial position, earnings quality, working capital and liabilities, usually carried out for a buyer or investor before a deal.
How is a private company valued?
Common approaches include earnings or cash-flow multiples, discounted cash flow and net asset value. The right mix depends on the business and the purpose.
Related situations
- “Money moves between the family and the company and nobody can say what it means.”Family and company money, kept apart
- “Head office wants numbers on its timetable and in its format.”Reporting to a foreign parent or investor
- “We need help with tax, NFRS or a complex financial matter.”Help with tax, NFRS or a complex financial matter