Mastering the art of the sale: Step 1 – preparing for a cross-border sale

If you are starting to think about whether to sell a business at some point in the future, or if you anticipate that you could have succession-related issues or are thinking about raising capital to fund future growth, there are a number of actions you can begin taking well in advance of launching an actual sales process. This is even more relevant in the context of a cross-border transaction.

Selling all or part of your company is more than just a transaction; it's the culmination of years of dedication and a key moment in your business journey. To ensure you maximize value and minimize disruption, meticulous preparation is essential. This guide explores the technical aspects of getting your business ready for a successful sale, helping you navigate the complexities of M&A with confidence. Even if you later decide not to sell, the points below are likely to increase the value of your business anyway.

1. Operational excellence: the cornerstone of value creation

• Talent retention: Your people are key to your business. Employee attrition during a sale is disruptive and costly. Identify key team members and consider retention strategies:
  • Retention Bonuses: Consider bonuses tied to milestones or the transaction's closing.
  • Open Communication: While you may want to keep a potential sale confidential, transparency about the sale process reduces anxiety and builds trust, especially in cross-border transactions where cultural differences may be a feature.
     
• Process standardization and documentation: Well-defined, documented processes demonstrate operational efficiency and repeatable success – key factors for any acquirer. Thoroughly document key workflows, standard operating procedures (SOPs), and key performance indicators (KPIs). This reduces the burden of buyer due diligence and helps post-acquisition integration, particularly across different jurisdictions.
  
  
• Customer concentration and retention: Reliance on a few large clients can be a red flag. Secure long-term contracts with key accounts to boost revenue stability and mitigate buyer concerns. If feasible, diversifying your customer base pre-sale and breaking large key accounts into smaller lots can be a valuable thing to do.
   

2. Legal and tax preparedness: mitigating risk, maximizing value

• Contractual review: Review material contracts (customer, vendor, employment, lease agreements) well in advance. Ensure they are:
  • Up-to-Date: Renew or renegotiate contracts that are nearing expiry to avoid red flags.
  • Assignable: Verify that agreements can transfer to a new owner without renegotiation.
  • Favorable: Address any unfavorable clauses or terms that could be blockers to a sale.
     
• Intellectual property (IP): Your IP is a valuable asset. Carry out a thorough assessment:
  • Identification: Document your IP, including websites and brand names, patents, trademarks, copyrights, and trade secrets. Make sure it is documented what IP belongs to you personally, to your company, to your employees and to your customers.
  • Protection: File necessary applications if any IP is unprotected, and make sure your contracts reflect the correct IP rights.
     
• Tax planning – engage tax advisors early to explore:
  • Restructuring: Consider the tax impact of your existing business and ownership structure before initiating a sale.
  • Deal Structure: Understand the tax implications of various deal structures (e.g., asset deal vs. share deal) so that you know your tax liability under various scenarios, especially in cross-border contexts where tax regulations may differ significantly.
     

3. Financial fitness: beyond the balance sheet

• Working capital optimization: Buyers assess efficient capital management, including:
  • Days Sales Outstanding (DSO): Streamline collections to demonstrate a healthy cash conversion cycle.
  • Inventory Turnover: Optimize inventory management to reduce holding costs and demonstrate efficient use of capital.
  • Days Payable Outstanding (DPO): Negotiate favorable payment terms with suppliers without jeopardizing relationships.
     
• Data-driven financial projections: Develop robust, data-driven financial projections that illustrate future growth potential and create a clear roadmap for the business post-acquisition. Carry out thorough market research and competitive analysis, with clearly articulated business drivers, to support your assumptions. Present multiple scenarios (base case, upside, downside) as this demonstrates a three dimensional understanding of potential outcomes and builds credibility.
   

4. Operational management: staying focused on the day-to-day 

• Maintaining business as usual: Too often, business leaders switch their focus from the day-to-day business to the sales process. However, maintaining business momentum is crucial, as a dip in performance during the process will raise red flags. Notwithstanding all the to-do’s before and during the sales process, make sure you keep your team focused, pursue new opportunities, and ensure you can demonstrate continued growth.
   

5. Preparedness: appointing advisors early

• Leverage advisors’ experience for your benefit: No two processes or transactions are the same, while for most business owners, selling a company is a once-in-a-lifetime event. Navigating the complexities of due diligence and the broader M&A process requires specialized expertise, particularly in cross-border transactions where regulatory and cultural differences are a factor. The sooner you engage an advisor, the more value they will be able to bring. The right financial advisor will help you prepare your business, anticipate potential buyer concerns, and present your business in the best possible light, maximizing value and helping you reach a successful outcome.

Approaching a potential transaction without adequate preparation can significantly impact your company's valuation and jeopardize the result. By proactively addressing the technical, financial, and operational aspects outlined above and engaging experienced advisors, you can avoid being a passive seller and instead become an empowered negotiator, maximizing value and retaining control throughout the process. Remember, a well-prepared seller is a confident seller – and confidence is key in securing the best possible outcome in any M&A transaction, especially in the complex realm of cross-border deals.

KPMG stands as a leading M&A advisor in Luxembourg and internationally. Our team of experienced professionals brings deep industry knowledge, transaction expertise, and a commitment to delivering exceptional client service. We understand the intricacies of the Luxembourg market and can provide tailored advice to help you achieve your strategic objectives. We have significant recent credentials as lead advisor and due diligence advisor on a large number of cross-border landmark transactions as well as important local deals.

Contact us today to discuss how we can support your next M&A transaction.