In the sale of a company, non-executive directors (NEDs) can play a crucial role in providing valuable support and insight throughout the transaction. While the primary responsibility for the sale rests with the owners, advisors, and senior management team, experienced NEDs can provide objective third-party advice and help ensure that the sale is approached with objectivity and clarity.
Some of the ways in which NEDs can be particularly helpful during the sale process include:
- Assessing the management team: Having the right management team in place is key when attracting a buyer. NEDs can provide an objective assessment of the management team to ensure the correct people are in place to drive the business forward and convince buyers that the business will meet its strategic goals. They can identify any weaknesses in the management team and help find the right talent to fill any gaps. NEDs can also advise on strengthening certain functions, such as finance, to withstand the due diligence rigours of a sale.
- Selecting the right advisor: Selecting the right advisor for a sale exercise is crucial. NEDs can help identify the criteria sought and see if proposed candidates fit the bill. They can ensure that the chosen advisor is the right fit and can fight the seller’s corner if needed.
- Offering long-term perspective: Management teams can often be focused on the short term, but NEDs can help provide a broader, longer-term perspective. They can view the transaction in its wider macro context and look ahead for any potential industry and economic disruptions on the horizon. NEDs can advise on how to make investment decisions that take into account the effect on the capital value of the business rather than just the immediate revenue effect.
- Providing objectivity: NEDs can approach the transaction more objectively than the management team, who may struggle to maintain objectivity while fully immersed in the day-to-day running of the business. NEDs can help smooth over any delays or tensions in the sales process and disagreements between management teams and the potential buyer. They can challenge the advisor in respect of the proposed choice of purchasers, the backup lists, and the nature of the approach.
- Advising on the process: NEDs with previous M&A experience can give the management team valuable insight into the sales process. They can advise on the pitfalls to look out for, the different approaches buyers can take, and what to prepare for during due diligence. NEDs should use their insight and knowledge to interrogate any sales documentation and question the underlying assumptions and biases of financial reports and forecasts to ensure they are credible and will withstand buyer scrutiny.
- Standing in the buyer’s shoes: NEDs with buy-side experience will be able to offer insight into a buyer’s thinking, which can be invaluable during negotiations. They can help management teams understand a buyer’s perspective and develop negotiating strategies to secure the best deal possible for the business.
By combining their expertise and experience, NEDs, advisors, and the management team can approach the sale process with objectivity and clarity, ensuring that the sale is optimized for the highest possible value. With their valuable support and insight, NEDs can play a critical role in ensuring a successful transaction that benefits all parties involved.