What are the Stages in the business buying process?

Deal origination and target business identification – this is the start of your business buying journey. You will normally need to “kiss a lot of frogs” to find the right business. For more information on how to do this, you can take a look at the services offered by the Valius Group.

Meeting the sellers – initially via Zoom/Teams online where you can undertake a fact find to explore more detail on the day to day. If you progress to a second meeting, this will likely be a face to face at the seller’s premises or, if the seller is particularly sensitive about this, a neutral venue to suit both parties.

Valuation – this will be conducted by your corporate financier/M&A accountant and will be carried out using recognised valuation methodologies. It will give you a range of valuations, based on differing multiples and thereafter, the buyer will make a decision in conjunction with their adviser as to the exact level of the valuation which you’d like to progress formally.

Indicative offer to purchase presented to the sellers’ advisers – this is an informal but crucial stage. The indicative offer will typically be presented via email and will let the seller know you are serious about purchasing their business. It will include the key terms of the offer for them to consider.

Heads of Terms (HOT) or Letter of Intent (LOI) – this is the document which outlines the key terms of the deal before moving to a legal/contractual position as defined in the Sale & Purchase Agreement (SPA) drawn up by the buyer’s lawyers. The Heads document is presented by the buyer to the seller via their advisers and contains a number of key areas around the deal. Essentially, the more comprehensive, the better on the basis that this will form the key content of the SPA in due course.

Signed HOT/LOI by both buyer and seller – this is the stage where both buyer and seller formally sign the HOT document to confirm their respective acceptance.

Financial and management information gathering and cashflow modelling exercise – this is where the corporate financier and internal/external accountants work together to produce a set of cashflow projections and forecasts to represent the financial performance of the business into the future, post deal completion, which can then be used when talking to funders.

Search for a funder – this will one of the corporate financier’s key tasks. They will talk to various parties, subject to whether the deal needs a debt or equity solution and present the deal to each of the parties to generate interest.

Indicative terms/initial term sheet from a funder – an initial term sheet, often referred to as indicative terms, outlines the key terms of the deal from the funder, including the capital sum to be borrowed; the length of the term; the interest rate; any capital repayment holiday (CRH); any “bullet /one off” payment to be made at the end of the term; the fees payable to the lender for the arrangement of the loan; any other stipulation pertaining to your specific funding deal.

Due diligence – Due diligence (DD) is DD can cover many angles – the primary ones being legal and financial but also, there are commercial and HR considerations too. It is the process of examining in detail the key constituent parts of a business, from the operational processes which control day to day trading to the detailed profit and loss and all that is contained within it.

Final Term Sheet / Credit Backed Offer – a final term sheet is the document from a funder which specifies their ultimate funding offer after the terms of the deal have passed through the funder’s credit committee and been granted as accepted. It is the document detailing the final version of the funding offer.

Legals – the Sale & Purchase Agreement (SPA) and legal due diligence – this is a detailed stage where you and your adviser/corporate financier will be working with your corporate solicitor to construct the SPA and the solicitor will liaise with the seller’s solicitor on an ongoing basis to agree contracts. This stage can take a few months and will take bring the process to a close with the final stage of completion.

Transaction completion – this is the key date and will be the day when the formalities come to an end. Money will be handed over and the deal completed.