Have you been thinking about selling your company, or at least extracting some value from it?
2014 may be a good year to put your thoughts into action, and there are several reasons why. The economy is finally picking up speed, and borrowing remains cheap as quantitative easing dampens interest rates: conditions are optimal for a rebound in M&A, as companies dust off their expansion plans.
European private equity firms have a lot of capital to deploy, with an estimated $124bn in dry powder. Quality companies with a strong growth “story” are in huge demand.
Lastly, this is a good time for owner-managers who missed out selling their business during the 2009-2011 recession, and who will now be looking for an exit strategy as they approach retirement age (64 per cent of UK entrepreneurs have no succession plan, 66 per cent are aged 50+ years)
What you need to consider
1. Decide why you are selling and how much you want to sell
Do you need capital to expand the business, perhaps to enter a new geographical market, or launch a new product? If you want to remain involved in the business, you could sell a minority stake, possibly to a private equity investor. This will allow you to retain control of your business, and also benefit from the business experience and networking opportunities that a private equity firm can offer.
If you wish to retire you may consider selling a majority stake or even the full business, again to a private equity investor, or a trade buyer, the later more likely requiring control of the business.
2. Hire an advisory team
You must hire someone you absolutely trust: selling your business is one of the biggest decisions you will make in life, and because of the many legal, financial and regulatory issues involved, you have to get this right.
A corporate advisor will help you to prepare all the critical information that will facilitate the marketing and sales process, including: a three year business plan to “sell” your long term growth story; historical due diligence material including current and historical trading and financial records. Having this vendor due diligence information prepared well in advance for potential buyers will expedite the sale process.
A corporate advisor should also identify potential deal-breaking issues early prior to approaching potential buyers, e.g. succession planning and ongoing leadership; contingent liabilities such as company pension deficits and legal issues.
Together with your legal adviser, a corporate adviser can also help you to navigate with sensitivity any issues around family politics and managing the legacy.
3. Identify the right potential buyers
Should you sell to a strategic trade buyer, or to a private equity firm? Should you be marketing your company to international investors? A corporate advisor with the relevant sector specialisms and global reach will have the ability to access the right buyer universe- wherever they are located.
An advisor will also know how best to market a business for the optimal outcome – customising the message to each potential buyer to focus on the most relevant attributes. Your corporate adviser should also give a stamp of authority to buyers, thereby underpinning good buyer behaviour in the sale process
4. Take the temperature of the M&A market, and time accordingly
Market conditions will ultimately decide how much your company is worth. Accelerating economic growth and improving debt financing conditions make for a recovering M&A market. The availability of finance will crucially impact on a private equity buyer’s leverage and what they are prepared to pay.
5. Come to the right valuation
Assess your expectations against the reality of the market. Are you being realistic? Your corporate advisor will provide initial guidance and will utilise their experience to create competitive tension in the bidding process thereby maximising the valuation achieved. This may involve controlling the number of bidders, or keeping others in the race so as to maintain some leverage over the lead bidder.
Improving conditions mean 2014 may shape up to be an optimal year for selling your business. But it is important to discuss your plans in advance with your adviser, and prepare well ahead to ensure a smooth and successful outcome.
David Silver is head of European investment banking at Robert W. Baird.
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