The UK economy will need to do a bit more uphill peddling before it can return to prosperity. But that doesn’t preclude a lucrative business sale over the coming 12 months if your company is groomed correctly. The early days of recovery are when cash-rich “predators” can be at their most active.
Grooming a business for sale is about maximising equity value. Here are ten exit considerations that you should bear in mind:
1. Business sale is a marathon, not a sprint. An effective exit that achieves the best possible price for your company is a strategic project that can take anywhere between 18 months to two years to complete. This is the average amount of time it takes to groom a business effectively and then complete the sales process.
2. Grooming a business is different to running one. Rather than simply being able to prove a great balance sheet, you’ll need a set of strategies that serve to maximise your company’s equity value. It includes working on aspects such the strength of its infrastructure, extent of market penetration, innovation and brand perception.
3. Look forward, not back. Predators tend to look for investments that they can bring their expertise to. For example, they may be looking for a business operating at 15 per cent profit that they can take up to 25 per cent with a little re-engineering. Therefore, don’t just boast about your company’s excellent track record – use it as proof of an exceptional future investment.
4. Don’t expect a “Mary Poppins” buyer to drop out of the sky. It’s unlikely that a predator will be looking for you. Selling a business for an optimal price requires a proactive strategy of targeting and courting a purchaser. The price of your business is closely linked to how much value you add to their portfolio, so look for a predator with a niche commercial objective that you can fulfil.
5. An offer price is a fragile thing. Naturally, the predator wants to pay as little as possible. Any perceived risk uncovered during their due diligence review of your business inevitably results in a drop in the offer price. Present your company in such a way that it gives them no cause to negotiate a price reduction.
6. Conduct “self due diligence”. Spotting and eradicating potential issues is best achieved by undertaking your own due diligence review ahead of placing your business on the market. Nine out of ten due diligence reviews expose issues, so find them before its costs you.
7. Don’t hide issues under the rug. Burying issues in the hope that the buyer won’t notice can be extremely risky. Partly because, if exposed, it will lengthen negotiations and inevitably fall to the advisors to sort out – the resulting additional fees eating further into your exit pot. Be open and honest, even to yourself.
8. Employment is a tricky animal. The complexity of employment law makes this the number one area in which inconsistencies are exposed during due diligence reviews. Employee contracts, director’s agreements and TUPE (transfer of undertakings) regularly cause problems for sellers, and should be examined in detail.
9. How secure is your intellectual property? The second most problematic area tends to be a business’s intangible assets, particularly if the purchaser is specifically buying a company for its brand. Ownership and security of the intellectual property must be unquestionable.
10. Be objective and open-minded. It’s unlikely that the buyer will see your business in the same way you do. More than likely “your baby” will become one of a number of business ventures in their portfolio, or it will be absorbed into a larger concern. Being objective and open-minded is particularly important if you’re staying on for a period of time to manage the transfer.
Ian Gibbon is a corporate finance partner at Alliotts chartered accountants and business advisors. Contact him on 020 7759 9393 or at email@example.com. Chris Wilks is head of corporate at law firm SA Law. Contact him on 01727 798083 or at firstname.lastname@example.org.
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