Managing Your Cash Flow

Nine questions to ask your corporate financier before selling your business

6 min read

10 January 2012

Thinking of selling your business? Here are the essential questions you need to ask your corporate financier before starting the process.

1. Why should I appoint you over someone else? 

What you’re looking for is a differential – anyone can send their best sales person to persuade you to use them, but will you ever see that person again? “You’re buying one of the most important services you’ll ever use,” says Jo Haigh, a partner at fds Corporate Finance Services. “You have to not only respect and trust this person, but also like them!”

2. How much of my time will the process take?

“Whatever you estimate, it’ll take twice as long,” says Haigh. “A good corporate financier will shield you from time wasters and prepare the data well in advance, but some details will be stored in your head – and the only way of getting to them is through you.” Make sure you leave enough time to sit down with your corporate financier.

3. What do you think my firm is worth?

This sounds like an obvious question but it’s crucial that your valuation expectations are within range of the corporate financier’s. “Perceptions of valuation will differ widely, and the justification of the pricing will show the extent to which the adviser understands the market’s perception of value,” says Charles Delingpole, co-founder of MarketInvoice, and a former corporate financier.

4. How much will this cost me?

“From the outset, you need to establish not only what fees will be payable, but also the basis of calculation to make sure there are no nasty surprises,” says Matthew Flower, a partner at corporate finance house Zolfo Cooper. “Will the corporate finance adviser only charge a success fee, or will there be retainers to pay? Will there be a fixed fee, or a valuation-based ratchet mechanism? When and how are fees paid on any deferred consideration? The structure needs to be clearly understood.”

5. Can you negotiate a deal with your preferred legal advisers?

Your dream team consists of a number of advisers critical to getting the deal over the line: the corporate financier and the legal team. “If they’re not commercially minded, or lack experience in your size of deal, lawyers can wreak havoc with the transaction – or worse, kill it – as they seek to de-risk the process, which is not possible,” Haigh of fds explains. “A good corporate financier will have built up a panel of people they recommend and work well with.”

6. Why is now the right time to sell?

“Timing is always crucial,” says Flower of Zolfo Cooper. “It may be beneficial to delay the sale process if general market conditions and the financing environment for potential buyers are difficult, or if the growth profile of the business is such that the valuation in, say, 12 months’ time is expected to be much higher. You need to have a high degree of confidence that a sale process will be seen through to the end. If a process is cancelled after launch, it can have a negative impact on future sale prospects.” 

7. What’s the best advice you can give me about the sale process?

Selling a business is a roller-coaster ride. Haigh explains: “Nothing you’ll ever have experienced before will help; you will go through highs and lows, deal fever and fatigue – often on the same day, even in the same hour. My advice? On a piece of paper the size of a playing card, write a list of all those things you will not compromise on. Keep it in your wallet at all times and look at it often to keep a sense of purpose.”

8. Which buyers will you target?

“The right buyer will be able to pay a higher price,” says MarketInvoice’s Delingpole. Look out for buyers who have significant synergies and access to capital. “Your corporate financier should have a good knowledge of your industry and have access to the right people, particularly if the buyer is a large corporate,” adds Zolfo Cooper’s Flower.

9. Is this the best deal for me?

“While there’s no scientific way of knowing whether this is the ‘best’ deal, the question is, are you happy with it?” says Haigh. “You don’t want a ‘coulda-woulda-shoulda’ situation. Few deals are perfect; some are simply dreadful in hindsight. There are things you can do to protect yourself – anti-embarrassment clauses mean you can claw back more value if the business is sold for a higher figure subsequent to your sale – but the main thing is to believe that this deal is good for you.”

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