Have you decided to sell your business? Not sure about the road ahead? Read on…..
The very first step in selling your company is to understand where the business is at the moment both financially and strategically. Profit is very important as is client base, USP’s and personnel.
Most exit strategies involve owners staying on in the business for up to 3 years or becoming a part of a larger corporate outfit. Placing a company on the market can therefore be used as much for growth as it can to cash in your chips. An exit strategy should ALWAYS be on the forefront of business strategy.
An in depth understanding of the business is very necessary including sales and marketing, operations, and specialisms. When we take on a client business, one of the first steps is to prepare an Information Memorandum (IM). It provides a detailed summary of the opportunity and will be aimed at targeted acquirer’s that are likely to be interested for strategic reasons; Marketplace is defined at this stage.
Financial preparation is equally as important; true past profitability and future income need to be established. The full financial benefits of the business would include director’s perks, one off investments, and calculating an EBITDA (earnings before Interest, Taxation, Depreciation and Amortisation). We do this by preparing a full financial performance document highlighting true profits for the previous 3 years and for the future.
When a business is placed on the market, it sometimes becomes vulnerable as competitors, clients and staff finding out creates uncertainty and can affect its future. Therefore, the sale has to be handled carefully and discretely so any marketing and first contact with potential acquirers has to be expertly navigated. Once potential purchaser’s become interested, any information given to competitors can again be damaging, so having a water tight non disclosure agreement (NDA) is imperative to protect confidential information and poaching of clients and staff. I have over 20 years’ experience in navigating through this tricky terrain and getting acquirers interested without having any affect on the business. Often target acquirers have to be approached several times before showing an interest as business strategy is ever changing so tenacity and market knowledge is key. I have found that the average acquirer responds after the third contact attempt.
Once an acquirer is interested and has signed an NDA, the IM, accounts and financial documents are disclosed. The opportunity has to be carefully explained and must align with the future strategy of the acquirer and they must be able to identify the benefits of an acquisition. Telephone and skype as well as face to face meetings help both parties to understand each others company, personnel, business culture and future strategy which is as important to the seller if they are to be involved as part of the acquisition.
When there is a full understanding of the opportunity for both parties, negotiations begin; acquirers will be tactical and keep their cards close to their chest, so reaching a deal that is most beneficial to the seller involves objectivity and a good negotiator is able to identify the area within which a deal is possible and create a win win situation. Most deals fall apart at this stage, which needs to be handled very carefully. Sometimes offers can be based upon future profits and payments made over a period of time, so the overall deal including salaries/ consultancy fees need to be considered. Having a third party and advisor creates the space for careful consideration so that the optimum deal can be achieved. It is also important to involve accountants and solicitors at this stage, for the appropriate legal and financial advice.
Once a win-win situation is agreed between the parties, the matter is then handed to solicitors to complete the formalities. The due diligence stage can again be tricky and a good advisor is key in helping to get the deal over the line.
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