Sell-Side Process Problems and Solutions
Welcome to the world of sell-side M&A, where the stakes couldn’t be higher and every stumbling block – both large and small – can scuttle your deal.
You know your business like the back of your hand, but the ins and outs of the transaction process itself are unfamiliar. Every year, we help 2,000+ companies run their deals on Datasite. Based on our experience, here are some of the most common sell-side process challenges and ways to overcome them.
Challenge #1: A slow start
Nothing kills a deal faster than a bungled beginning. But you may misjudge the amount of time it takes to put your information into a sale-ready format. Sale processes can launch fast, so that’s time you don’t have to squander.
You will need to conduct a third-party audit and prepare for quality of earnings reports. In addition, you may have to create org charts, review and update key contracts, and generally ensure that all your paperwork is in order across the business.
Your over-extended management team also may struggle simply to gather and organize all the documents you need and make them share-ready. For example, redacting personally identifiable information (PII) from your employee or customer records can take weeks.
Solution #1: Move to constant readiness
Conduct a due diligence audit to identify and plug documentation gaps. Many organizations start thinking about this a year or two in advance of an exit, so they’re never caught off-guard.
Work with external advisors to ensure your numbers are clean, realistic, and easily digestible. Check key items like change of control terms, office lease dates, and employee non-competes.
Finally, gather and keep key documents updated in a secure data room, so you can launch quickly when the time comes. Some VDRs will allow you to prep for free prior to launch, including redacting sensitive information from documents in-app.
Challenge #2: A messy data room
Like its physical equivalent, a disorganized VDR can put a potential bidder off fast. Buyers, often over-stretched and working on multiple deals, do not want to do the housekeeping work for you.
A disorderly site can also seriously slow your process down. Buyers organize reviews via workstreams focused on different functional areas, like HR or Real Estate. Those workstreams will only examine information in the folders provided to them, so incorrectly categorized documents can lead to big misses, tedious Q&As, and apathy.
Buyers also may interpret a cluttered look as a sign of general unpreparedness or disinterest. Nothing screams ambivalence about an exit like a disheveled appearance.
Solution #2: Button-up your VDR
Lean on data room support and AI tools like auto-categorization to make your documentation look good. Just like staging a house, taking the time to do it right can result in big pay offs.
Buyers looking at multiple prospects will naturally gravitate to the one that requires the least amount of clean-up on their part. Similarly, enabling buy-side workstreams to easily conduct their parts of the review will keep your process moving – and buyer appetite sharp.
Finally, never underestimate the power of professional polish. When all your documents are in order, you’re signaling to your buyer that you’re excited about next steps and that you’ll be a strong investment.
Challenge #3: Information tightrope
With an average of 39 reviewers per transaction, the sheer number of people whose access to sensitive materials you need to manage throughout the sale process can be excruciating. And the stakes couldn’t be higher.
Share too much information, too easily and you risk competitor leaks and data privacy violations. On the other hand, if you don’t share enough information, buyers can walk. Either way, you’re out of luck.
With so much on the line, ensuring information is appropriately share-ready requires constant attention. Triple-checking that only the right people can see the right documents keeps you up at night.
Solution #3: Train and control
There’s no side-stepping this task, but with the appropriate VDR training you can ensure your team leverages every tool at their disposal to master disclosure management.
Consider redaction – a prerequisite to sensitive information sharing. In our recent survey, corporate dealmakers estimated it took them roughly 3-4 weeks to redact and unredact documents during the sale process, with 47% calling it very or extremely challenging. Case studies have found significant time savings, however, when redaction is conducted within the VDR compared to more manual methods.
Similarly, understanding how to quickly set and check user and document permissions are key to controlling access. Leveraging data room analytics to confirm settings adds another layer of security.
Challenge #4: Flying blind
Once you’re up and running, navigating your process to ensure maximum bidder interest is mission-critical. However, assessing appetite is easier said than done.
Questions abound. Did all the buyers log-in to the data room okay? What folders and documents have they reviewed – and are they looking at the right ones? What searches are they conducting and why? Whose interest appears to be trailing off and what can I do about it?
Finding the answers to these questions – and ensuring they get answered in real-time - requires constant, manual attention. Staying in the dark, however, can easily lose you your deal.
Solution #4: Sharpen oversight
Don’t just rely on third-party reports. Embrace VDR analytics so you can answer your own questions in real-time.
Some VDR’s provide increasingly sophisticated analytics. Visual dashboards can quickly provide you with important clues to help facilitate bidder interest. For instance, if you see a buyer keeps searching for asbestos terminology, make sure you’re ready to answer any asbestos-related questions.
Finally, you can reduce your internal reporting work by leaning on VDR capabilities. For instance, you can schedule your favorite VDR activity reports for before important meetings. Or work with your provider to create custom reports in your company’s brand colors and style to save reformatting time.
Challenge #5: Tail-end Stop-ups
With the euphoria (and exhaustion) of a deal almost in your grasp, it’s easy to underestimate how much work is left getting to that successful exit. It’s not until you’ve climbed the mountain that you see there’s still another peak.
Regulatory communications or even smaller deal-end hurdles like, for divestitures, negotiating transition service agreements (TSAs), can take far longer than expected. This can produce unexpected challenges both large and small.
Matters of longer-term consequence like post-merger-integration (PMI) and post-close financing also may catch you by surprise. For instance, seller and buyer expectations around how to achieve future performance targets may not align. Or your financing may drag out.
Solution #5: Adjust expectations
Mentally prepare yourself and your team for that last, huge push. Post-close activities take an average of 5-6 weeks, so keep that benchmark front of mind.
Then do what you can to anticipate issues. For instance, speak to your VDR rep about your project terms, so if you need to extend your time you don’t get stuck with unexpected overages. If TSAs are on your list, ensure a team with operational, financial and legal experience works together in advance of any close so carve-out costs are timed and budgeted for appropriately.
For big picture issues like PMI, don’t assume that these matters will take care of themselves at the end of the deal. Spend time with your management team discussing what individuals hope for both themselves and the business after the exit. Then make sure you have those conversations up-front with potential buyers so both teams are aligned.
Solve for your biggest process challenges with Datasite
When everything’s on the line, you want best-in-class support and technology behind you.
Lean on bulk upload, AI-enabled auto-categorization, and document previews. Email info directly into the data room.
Assess interest by seeing who’s accessing the data room and what documents they’re looking at. Customize and receive reports on automatic so you’re always up-to-speed.
Save 50%+ in time and money with embedded workflow tools like Redaction AI and document translation.
Protect sensitive information with intuitive user permissions, in-app Q&A, and ironclad security. Keep GDPR/CCPA compliant.
