Everything You Need to Know About Selling a Company

Everything You Need to Know About Selling a Company

Although M&A transactions have been a part of the business world for many years, they began to gain significant momentum in the 1980s. Turkey, with its demographics and geopolitical position, large domestic market, cost-effective production capability and qualified employee profile, has always been a country in the spotlight of foreign investors.

With economic reforms, changing policies and industrial investments, Turkey began to experience a remarkable acceleration in foreign capital inflows, especially in the early 2000s. During this period, Turkey has become a vibrant investment destination for both domestic and foreign investors and continues to be an active market for M&A activities.

What is a Company Sale?

It is the process by which one or more of the shareholders of a company transfer some or all of their shares to other shareholders within the company or to an external buyer. Company sale processes require an experienced financial advisor who knows the market and process management well and has a significant transaction track record in its geography. The sell side financial advisor manages the entire process by aiming to satisfy the motivation of the seller in order to conclude the transaction successfully.

The Motivation Behind Selling and Acquiring Companies

M&A processes are based on the strategic and financial motivations of both the seller and the buyer. For the project to be successful, the management and results of the process must meet the motivations of both parties. At this point, the financial advisor ensures that the process is managed successfully and in a way that meets the motivations of both parties with its professional approach, knowledge and experience at every step of the process.

The main motivation for the successful completion of the process should be to find the right balance between price, deal terms, timing and the alignment of the parties.

The process of selling a company is based on motivations such as the following:

Sell-side motivations

  • Shareholders want to convert their capital into cash with an attractive return by selling their companies that have reached a certain size.
  • Seeking capital and partners for growth (through partial share sale)
  • Desire to invest in a different new business area
  • Succession issues, ie no available new generation to take over the company
  • Managerial and financial difficulties

Buy-side motivations

  • Strategic growth in the sector
  • Gaining market share
  • Vertical / horizontal integration
  • Expansion into new markets
  • Create new sales channels
  • Appetite for investment in a new sector
  • To spread risk by having a presence in different sectors and to create a structure that is resilient to economic ups and downs or to achieve growth

The Process of Selling a Company

The sale process requires a certain amount of preparation. The proper design and management of this preliminary preparation increases the chances of achieving the financial targets expected from the sale and the likelihood of success of the process.

In addition to evaluating sectoral trends, market, and customer trends during the preparation phase, conducting a vendor due-diligence study ensures that the company's story and financials are told consistently from start to finish. During the vendor due diligence process, the auditing company analyzes the company financials considering its operations and the industry.

Depending on the nature of the transaction and shareholder expectations, the sale process can be managed exclusively with one buyer or competitively by reaching out to a broad universe of potential investors. In exclusive (bilateral) processes, information is shared with only one prospective buyer, whereas in competitive processes, information is shared with preferred and interested prospective buyers. The process is usually shorter under competitive pressure.

In competitive processes, after the financial advisor gets to know the company and gathers information, a teaser document containing the company's investment story and basic operational information is shared with the universe of potential investors.

After signing a confidentiality agreement with potential investors showing interest in the project, an Information Memorandum describing the company's operations, value-creating components and business plan together with key investment points is circulated. Interested investors submit their Non-Binding Bids based on the information in the Information Memorandum and the company's business plan. Following the evaluation of the Non-Binding Bids, shortlisted potential investors begin the due-diligence process.

During the due-diligence process, site visits, management presentations and, where necessary, expert sessions take place, and the Share Purchase Agreement is drafted. Following the due diligence process, potential investors submit their Binding Bids. Upon receipt of the Binding Bids, one of the investors is identified and granted exclusivity or negotiations continue with 2-3 investors until the final stage.

After the final negotiations, the Share Purchase Agreement is signed. After the fulfillment of other legal procedures and prerequisites, the transaction closes and money and shares change hands.

Sell-side M&A Advisory

Company sale and acquisition processes are multilateral, time-consuming and require strategic and financial expertise. The financial advisor plays a key role in helping the Seller realize the motivations behind the sale of some or all of its company's shares, while helping the Seller strike the right balance between price, deal terms, timing and party alignment.

Having a financial advisor manage the process on behalf of the seller maximizes the value that the seller gets from the transaction by maximizing competition in the process. The financial advisor plays an active role in all stages of the project:

  • Analyzing the company, creating the investment story, and explaining it to prospective buyers
  • Completion of business plan and valuation study
  • Preparation of marketing documents
  • Information sharing and communication with investors
  • Managing the due diligence process
  • Organization of executive presentations and site visits
  • Preparation of share sale and shareholders agreements with legal advisors
  • Overall coordination

Capturing the True Value of the Company in a Potential Sale

Getting the highest possible value from selling a business requires good planning, preparation, and an effective strategy. The concept of maximizing value from a sale should be approached from a holistic perspective.

In addition to achieving fair value in nominal terms, the terms of the share transfer should also protect the interests of the company's shareholders.

With this approach, some of the steps required to sell the company at fair value are as follows:

  • Professional advice: A professional financial advisor ensures a more effective and competitive process and increases the likelihood of a successful sale.
  • Explaining the investment opportunity correctly: Explaining how the company will add value to potential investors and its strengths compared to its competitors in an effective and professional manner helps to sell the company at a fair value range.
  • Company valuation: Conducting an accurate valuation of the company and knowing what the fair value range is helps determine the strategy in the process. To make a healthy valuation, it is necessary to get the support of a financial advisor who is involved in the entire transaction.
  • Sound pre-transaction preparation: Pre-transaction preparations, which are made by examining the company's financial records, contracts, and operations, and which may involve consultants with different specializations, are carried out under the coordination of the financial advisor. This ensures that the equity story is properly crafted from an investor perspective throughout the project.
  • Negotiations: Working with a financial advisor and legal advisor familiar with the nature of M&A transactions ensures that an agreement is reached through negotiations in a manner that protects the interests of the Seller. The legal advisor assists with legal matters, while the financial advisor manages the commercial aspects of the contract.

Selling a Company to Foreign Investors

The universe of potential investors reached during the company sale process is crucial to the success of the transaction. One of the most important contributions of the financial advisor to the process is to find the right candidates in Turkey and abroad, and to explain the investment opportunity accurately and in a way that appeals to the investor's logic.

The presence of foreign investors among the relevant candidates in the process is important in increasing the competition of the process.

The process of selling a company to a foreign investor requires a professional approach in many aspects. In the process of selling companies to foreign investors, it is necessary to conduct a clear, comprehensive, and transparent process that takes into account the needs and expectations of foreign investors, and to explain the market, sector and business in a way that appeals to the motivations of foreign investors.

Being represented by an experienced financial advisor in front of the foreign investor facilitates the process with the foreign investor.

Advantages / Disadvantages based on Share Sale Ratio

100% Sale

In projects with 100% share sale, there is maximum interest and competition from investors and therefore maximum valuation. It also provides a clean and easy exit for the seller. However, future marginal growth opportunities may be missed.

Majority Sale (>50%)

In projects involving majority share sales, the experience of the new partner and commercial/financial synergies can create leverage. Majority sales also result in high valuations due to the control premium. On the other hand, disadvantages include reduced control over management for the seller, the need to negotiate a final sale in the future and the restriction of the ability to capitalize on future growth opportunities.

50% Sale - Joint management

In projects involving a 50% stake sale, there is interest from both financial and strategic investors, and the seller preserves control of the company. However, there are also disadvantages such as sensitive negotiations over governance, difficulties in future decision-making, low investor interest, and lack of a control premium in valuation.

Minority Sale (<50%)

In projects involving minority stake sales, financial benefits are realized without losing control of the company and opportunities for future growth are created. On the other hand, investor interest is considerably less than in a majority sale (as strategic players are relatively less interested in minority stakes) and post-transaction strategic benefits remain limited.

ÜNLÜ & Co Experience in M&A Transactions

ÜNLÜ & Co is Turkey's leading M&A advisor with a transaction volume of USD 18.4 billion and 132 successful transactions since its establishment.

Of the 132 transactions, 49 were buy-side and 83 were sell-side advisory transactions, of which 89 were cross-border acquisitions. As the advisor of choice for large groups and families in Turkey, ÜNLÜ & Co offers service quality on par with global investment banks in transactions with high monetary size.

ÜNLÜ & Co, which has deep experience in a wide range of sectors in terms of numbers as well as monetary size, offers the highest level of service quality in the projects undertaken, regardless of size.

The experience and industry ranking of the Managing Directors who will manage the transaction, the fact that the project is designed in the most appropriate way for the client and in a way that will increase the transaction value, and the principle of taking action after the necessary preparations are completed in order to protect company value and client reputation are the factors that differentiate ÜNLÜ & Co from its competitors in the field.

ÜNLÜ & Co, which is well acquainted with both the financial and strategic investor base in Turkey, acts with the motivation of being a "reliable long-term financial advisor".