Hatching Your Nest Egg - The M&A Process

Most business owners only sell a company once in their lifetime. The process can feel like a mysterious black box: bankers, lawyers, accountants, endless “diligence” questions, and a mountain of documents. But beneath all that, the M&A process usually follows a predictable sequence. Think of it like a marathon with pit stops, each stage gets you closer to the finish line.

1. Pre-Process Prep 🥚

Before anything goes “to market,” the seller and their advisors gather financials, legal documents, customer contracts, and growth stories into a tight package. This prep work sets the stage for how buyers will view the business.

• Clean up financials (bookkeeping, audits, forecasts)

• Organize corporate and legal documents

• Identify potential risks early

Here is where a sell-side advisor earns their keep. They are your quarterback: they build the story buyers will see, manage the process, negotiate terms, and keep the deal on track when things get messy. In return, you will pay them a success fee (1-5% of transaction value) and sometimes a monthly retainer ($10,000 - $20,000).

2. Quality of Earnings (QoE) Analysis 📊

One of the smartest prep steps is commissioning a Quality of Earnings report. This is not a tax return or an audit. It is a deep dive into your numbers to test whether profits are sustainable and repeatable.

A QoE report looks at:

• Adjusting EBITDA for one-time or non-recurring items

• Testing whether revenue is recurring or project-based

• Reviewing working capital and cash flow conversion

Buyers almost always run their own QoE. If you do one first, you get ahead of questions, fix issues, and build buyer confidence.

💸 Typical Cost: $75k to $150k, usually paid up front to a third-party accounting firm.

3. Marketing the Business 📣

Your advisor prepares two main documents:

• A Teaser (short, anonymous profile of the business)

• A Confidential Information Memorandum (CIM), a 30 - 60 page presentation which tells the full story after buyers sign NDAs

Think of the CIM as your company’s dating profile. Instead of “long walks on the beach,” it highlights margins, customers, and growth drivers.

4. First-Round Indications 📝

Interested buyers submit an “Indication of Interest” (IOI). These are non-binding letters that outline valuation range, structure, and deal approach. Sellers can then see who is serious.

5. Management Meetings 👥

Shortlisted buyers meet the management team. These are part pitch, part interrogation. Sellers need to be prepared, polished, and ready to show why the business has a bright future.

6. Second-Round Bids 💰

After meetings, buyers submit more detailed offers, often called Letters of Intent (LOIs). Once a seller signs one, the company usually grants that buyer exclusivity to finish diligence. Here, your bankers will be instrumental in negotiating a deal that works for you.

7. Due Diligence 🔍

This is the deep dive: financial, legal, tax, HR, IT, and operations. Everything is scrutinized. Virtual datarooms keep the chaos organized.

💸 Typical Expenses:

• VDRs: Usually $10k to $30k for the duration of the process, depending on size and features.

• Legal Fees: $200k to $500k or more depending on deal size and complexity. Most is paid during diligence and at closing.

8. Negotiating the Purchase Agreement ✍️

While diligence is running, lawyers hammer out the definitive documents: purchase agreement, disclosure schedules, and ancillary agreements. This is where reps and warranties, indemnities, escrows, and earnouts are set. A good sell-side advisor is also involved in this process to ensure the agreement matches the deal you agreed to in the LOI and to address any last-minute deal term hiccups that inevitably arise.

9. Closing and Post-Close 🎉

If everything checks out, the deal closes: money changes hands, documents are signed, and the seller transitions ownership. Post-close, there may be working capital adjustments, earnouts, or integration work. Plus the closing dinner... yum!

How to Prepare for an Exit

Good preparation goes a long way in an M&A process. Organizing financials, contracts, and compliance materials early often means outside advisors spend less time chasing down gaps, which can reduce the scope and cost of a Quality of Earnings review or legal diligence. It also makes the process feel more manageable, since you are not scrambling to answer hundreds of last-minute requests.

Nest Egguity is designed to help business owners build these habits in advance so they approach a sale with greater confidence and efficiency. Try for free.

Wrapping Up

The M&A process is a marathon, not a sprint. From prep to closing, it usually takes 6 to 9 months, sometimes longer. Along the way, you will spend real money on advisors, accountants, and lawyers. Those investments often pay for themselves by creating buyer confidence, avoiding pitfalls, and ultimately increasing the price you take home.