Despite the persisting wall of difficulties the sector faces, it is still possible to get excellent value on selling a retail business.
Drawing on the views and opinions expressed at a Cavendish Corporate Finance breakfast – which was held for the finance directors (FDs) of 15 leading retail companies – these ten top tips will help you break through barriers to achieve just that.
1. Defy the sector backdrop
Although the sector backdrop is tough, it is possible to defy this with the right positioning and narrative. For example, we sold luxury online steak retailer Donald Russell and the Robert Dyas’s iron mongery chain, and in both cases their differentiated market positioning was key.
2. Prepare your business for sale
Retail firms take more preparation than most. They are often complex, involving store networks, distribution outlets, long supply chains, and varying stock levels. So, ensuring that all business plans, balance sheets, forecasts are prepared in advance is vital to ensuring everything goes to plan and to reassure potential buyers.
3. Look at the financial function
It’s not glamorous but FDs and accountants end up doing the lion’s share of the work during a sale. Their role is demanding, so make sure that there is enough resource – get some temporary assistance or someone on secondment for the duration of the sale. That way the business shouldn’t suffer.
4. Assess your portfolio by performance
Where there is a bricks and mortar presence, ensure that there are no weak links in the portfolio. This makes it easier to justify a roll-out plan and increases buyer confidence. This was a crucial factor in the successful sale of the Hancocks cash and carry chain to H2 private equity.
5. Prioritise brands
Retailers need to protect their brands. In particular, a strong line of own-branded products can be a big draw for buyers, so it’s worth focusing on this ahead of a sale
6. Update your payment technology
Cash payments have fallen from 43 per cent to just 30 per cent since 2003, partly due to payment via smartphones, which is a fast-emerging trend in the retail sector. It is critical that business looking to sell update their payment technology as buyers may be deterred by fear of heavy software investment.
7. Use PR effectively
Positive PR is important. Payments Council research shows that nearly 60 per cent of retail spending is now made in supermarkets. Other retail businesses need to demonstrate to potential buyers that they can grow in such an environment. Leaks to the media could also help attract more buyers.
8. Get close to your buyers
Ideally, you should work with your advisors two years ahead of a sale. This gives you time to identify likely buyers and get close to them. A buyer who knows your business will be more confident about a sale. Crucially, you can time talks for when buyers are receptive to acquisitions
9. Make the business attractive to buyers
Review your business carefully with your advisers. If you want to include private equity as buyers, is the team up to it? Are there any gaps you could fill? Similarly, look at the business mix and positioning – by analysing future synergies – with potential buyers. We recently sold Snappy Snaps to Timpson, which was a perfect fit due to its geography and several avenues to improve store profits.
10. Set out a strict time-frame
With retail business more complex than most to sell, it’s important to set out a time table, and stick to it. Giving enough time for potential buyers to carry out due diligence and review business plans is key. Stalling the process can prompt buyers to have second thoughts – and price-chipping to begin.
Jonathan Buxton is a partner at Cavendish Corporate Finance.
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