M&A Seller: Prep for Sale Process

​\If the process works, why waste the effort reviewing it?  …. Value and selling price!  In many mid-size companies, processes may be much less formal than larger established companies would prefer.  Well thought-out, well-documented procedures applied by well-qualified personnel in an effective organization will add value and marketability to any sale.  You should be able to demonstrate that your success is by design, and not by accident.  Several simple steps to ensure that you receive full value for your business:

  • Identify the critical processes.  While all processes may be valuable, what processes – if broken – will substantially change the valuation of the Company?  For example in a high technology start-up, with a successfully launched initial product, the R&D new product development processes will be critical.  This includes the processes used to develop the successfully launched product, as well as those used for the new product pipeline. 
  • If you were an independent investigator responsible for reviewing the processes used to develop the previously released product, would you find a well-documented process, implemented by a well-trained staff, in a systematic way, or sloppy documentation implemented by unqualified and poorly trained personnel?  Was the first product the result of good luck or good process?  If you were to find such a development process, how much validity would the patent application have?  E.g. did you notice the photocopy of the rough diagram from the competitor, dated 6 months before the project started?
  • Review the documented procedures.  If procedures are not documented, how can you explain the processes used in the functional area (e.g. manufacturing operations will have bills of material, job routings, standard materials lists…).  Worse yet, will the successful processes be repeatable for a new owner?  As you review the procedures, have they been effectively developed … leaned out … so that only essential activities are required?  Do you have a continuous improvement process that makes your company more competitive?
  • Observe or somehow ensure that the procedures are actually implemented in the functional area.  Sometimes procedures may be merely window dressing and are not an integral part of the functioning process.  Challenge the operators to become more confident about their implementation and their experience qualifications.
  • For those critical processes, validate that the personnel in the function are properly trained, and technically qualified to execute the procedures.  If you were an outside reviewer, would you be impressed?
  • Investigate all the elements of critical processes to ensure that every significant process has been considered.  For example, in some functions, critical elements may be outsourced, and may be subject to continuing risk.  In a manufacturing environment, subassembly production may be outsourced to organizations with core competencies unavailable inside the Company.  In the case of manufactured products, fabrication with exotic metals may require unique manufacturing facilities and engineering skills.  When investigating the manufacturing process, what process risks may be hidden with this outsourced process?  Will the outside resource be available to another company?

In all cases, identify the risks and opportunities that exist in your business, as if you were an outsider.  Focus on the critical processes initially, and then pursue others. As you proceed through the process review, you will likely discover business improvements that will improve your competitiveness, and earnings.

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