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How to sell a business (9) – setting a price

3 Mins

That’s better. I finally met a lawyer with whom I could have a conversation. He also used phrases like “if you agree” and “it‘s up to you”. He told me of a firm who charged £495k… and the sale price was £500k! They actually bankrupted one of the sellers.

We got on with heads of terms. One thorny issue: it would spook the purchasers to have to put the whole earn-out payment in escrow; at the same time, we need protection that they will pay. Answer: put the next year’s estimate in escrow. It works out that they will be paying what they expect to pay then. If they need to find more, it’s because we’re exceeding expectations. Win-win.

This still leaves the question of what happens if they fail to pay. The obvious solution is to buy your company back for £1. But the problem is that the purchaser could attack this as a penalty. The answer is that you sell the shares subject to a charge in favour of you – the vendor – exercisable in the event of non-payment. So you would take the shares back and sell them on, so long as the purchaser, in this case Diversity Ltd, gets all or some of its money back.

The lawyer suggested that we include an exclusivity period for them, which I agreed with, and gave me the list of stuff that usually counts as managing the business without interference. Not rocket science, but helpful. 

Then we discussed fees and Martin was happy to take the role that I wanted – as adviser rather than executive. He thought about it overnight and proposed £25k. Then he rang up and said on reflection he should be able to do it for less. I replied that we should take it a step at a time and he shouldn’t send me a bill without talking to me first. He agreed.

That’s a weight off my mind. Next task is to get the management up to speed and happy with the detailed proposals.

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If you’d be interested to talk to our mystery vendor direct, email or tweet the Real Business team.

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