Written by James Bailey, Partner.

 

We’ve been covering the key areas to consider when preparing your business for sale. In my first blog on preparing for sale I covered understanding your objectives, starting the process early, company profile / brand and the trajectory of your business.

This second blog on preparing for sale will cover other key considerations:

1. Have the right management team in place

Reducing dependency on the owner or retiring management team will go to value as well as potentially shortening the required handover period post-sale.

If you are selling the business to private equity, there needs to be a clear plan and the right people to continue to run the business and deliver the strategy the PE house is buying into. If you don’t have a CEO in place, then you may be needed to run the business for a period whilst a successor is recruited.

2. Good housekeeping

You need to ensure in the run up to a business sale that you have all your ‘housekeeping’ in order. This can be in areas such as contracts being place for your staff, property, suppliers, customers and company financials.

You need to ensure you have the right quality and depth of financial information in the years running up to the sale. Implementing or improving the effectiveness of management accounting and KPI reporting will go to value as well as assisting in making the due diligence process smoother.

The demand for quality information is crucial in any sale transaction. Some sectors such as technology have detailed and sophisticated requirements around due diligence – having that data prepared and readily available is a great idea.

3. Get to know potential buyers

Understanding exactly who the future buyers of your business could be will undoubtedly help you better to prepare for the sale. You need to think like a buyer to understand why they may buy your business and what their objectives might be.  Any process will involve a more detailed review and it’s a fair bet you will not identify the ultimate buyer but the exercise will help in readying yourself.

As much as it’s good to identify your potential buyers and put yourself in their shoes, you don’t want to slavishly match your strategy to just one buyer. They may not become your eventual purchaser so, build a list of companies and CEOs that you think may be interested, and perhaps aim to ‘get on their radar’ in the years before an eventual sale.

4. Business structure and tax planning

Efficient tax planning in advance of a sale clearly makes sense. The earlier you put such planning in place the better.

Restructuring prior to sale might enable you to re-organise the ownership, operational, capital, tax and legal aspects of your company to align your structure to your long-term goals and personal wealth objectives.

Restructuring will take time, so early preparation is key. Restructuring can take many forms and will depend on what you wish to achieve, for example:

• consolidating businesses into a group structure
• share reorganisation
• demerging surplus assets such as property

5. Seek professional advice early

It is never too early to seek the right professional advice. A professional advisor will be able to help you identify potential buyers, ensure there are no ticking time bombs in the business, help you to focus on the areas that will increase value and ensure the sale process goes smoothly.

Here at Springboard, we work with business owners and founders up to 2-3 years before the business is sold.  Our work in buying businesses and years of experience selling mean we know exactly what buyers will be looking for and we will advise you on all the options for sale, challenge your thinking and give you straightforward advice.

If you would like advice and help on preparing for sale, then contact us today.

Written by James Bailey, Partner.

To achieve a successful sale, maximise value and minimise the risk of a failed transaction, founders and shareholders should have a clear plan.  Below, I’ll cover some initial areas to consider and will follow up with more detailed considerations for sale preparation in a subsequent article.

1. Be clear on your objectives

Being really clear on your objectives is an important first step when preparing to sell your business. Consider whether your objectives are purely financial, personal, and the role that creating a legacy plays in your decision.   Maximising value is a simple goal but how important is who the acquirer is and their likely approach to your ‘baby’ when they have the keys?

Having a set of realistic goals will increase the likelihood of achieving your objectives. Clear objectives should also allow you to keep sight of the reasons for selling your business and increase the likelihood of a successful outcome.

2. Start early

My key piece of advice is that it is never too early to start preparing for sale. There will be areas you need to work on in your business and the earlier you identify these, the better. If you leave making significant changes until just prior to sale, a prospective buyer may well see these as cosmetic and purely for sale purposes.

This is your one opportunity to crystallise the value that you have created over many years. You simply cannot start too early in readying for sale.

3. Consider your business profile and brand

Consider how your business looks to the external market and its reputation. How your ‘brand’ is perceived will have a significant impact on who may purchase your company and value they place on it.

Branding/profile is about creating a reputation, credibility, longevity and market positioning for your company. It encompasses everything you do and say as a business. It can be a simple as your website – which is very likely to be the first port of call for many potential suitors through to your attendance at trade shows and the profile you generate through industry awards. Whilst all of these might feel quite tactical, they all add to your credibility and visibility.

4. Think about the trajectory of your business

Your business trajectory (both financially and commercially) can be one of the most valuable (or destructive) factors available to you when you decide to sell.

Buyers will be not only looking at your business today, but its future prospects. When growing and scaling your business, one of the most important decisions you make is about the path you’re taking to get where you want to be. Your business trajectory starts with a clear goal, then defines the most direct path to achieve that goal.

The trajectory of your business can be evidenced in a variety of ways whether it is customer acquisition rates or increases in profit or revenue. You need to show potential buyers’ momentum and showcase a well thought-out and invested business. Buyers will have their own views on what they might do with your business but they will place a premium on a target that has its own clarity of vision and momentum.

Summary

One of the most significant challenges that business owners and shareholders face is laying the groundwork for a successful sale of the business. The challenge involves understanding what to work on to prepare your business for sale and when to work on those key areas. You will sell once and it’s impossible to overstate the importance of being ready.

Planning is key to the successful outcome of any sale process. Ineffective pre-sale planning will result in lost value for shareholders and worse still a failed sale process.

Selling your business is often a once-in-a-lifetime event and you need to get it right. A key component to effective preparation and a successful sale is allowing sufficient time to prepare and having the right advisors on board to support you.

Contact us today if you require help and advice on preparing your business for sale.

Written by Robert Johnson, Partner.

The decision to sell your business and who to sell it to can often be a tough one to make. You need to carefully consider all your options and reflect on several factors including:

• Your personal and professional aspirations
• Whether you’re seeking a ‘clean’ exit with no ongoing involvement
• The time horizon which you are comfortable optimising your returns over

In this blog, I discuss three different types of buyers that you could sell your business to and highlight the strengths of each given the factors outlined above.

 

Strategic buyer trade sale

Strategic buyers normally look to acquire a business that can complement or support their current operations. They are typically bigger corporates based in the UK or overseas.

Strategic buyers are likely to be operating within the same or complementary industry as your business. They will know the sector and the opportunities within it and clearly understand the benefits of acquiring your business. These types of businesses are less likely to require you to continue to run the business long-term, giving you the option to exit the business quickly and have a ‘clean break’ from the business.

Their reason for an acquisition will be to access critical components of your business such as your customer base, manufacturing capabilities, your team, or your Intellectual Property. Fundamentally they will want to generate synergies – which are typically about cost savings or revenue growth.

Benefits of strategic buyers

• These types of buyers are generally prepared to pay a higher multiple for a business – they will be including some element of the synergies highlighted above
• Strategic buyers will often give you the ability to exit your business more quickly. This will be via handover period that might last between 3 and 12 months. There may be a financial incentive for you to complete this period successfully.
• If you retain a stake in the business, perhaps with an option to sell it to the acquirer after a period, you could benefit from better returns as they are likely to improve the business through the synergies outlined above. You do of course need to remember that there will be only one buyer for your retained stake and therefore agreeing the right valuation mechanism on day one is crucial.

 

PE backed trade sale

A PE backed trade sale is similar to that of a strategic buyer, but the buyer will be backed by private equity funding. These types of acquirers will have a similar rationale to a strategic buyer and will be looking for synergies and growth opportunities.

PE backed acquirers are becoming much more prevalent in the market and we have completed a number of sales for clients being purchased by these types of companies as well as advising a number of serial acquirors.

Things to consider when selling to a buyer with PE backing are:

• They may be looking for fast value creation from the acquisition.
• They will be making other acquisitions or going through other transaction liquidity events in the future.

Benefits of a PE backed trade sale

• PE backed trade buyers are proven acquirers, with well-defined processes to manage the deal. This means the deal can be quicker and easier to complete.
• They bring with them credibility.
• You may have the ability to retain shares and there will be good opportunity to realise further value as the acquirer will itself be going through a liquidity event in relatively short order.

 

Sale to a Private Equity Fund

If you’ve founded and grown your business and have the right leadership team in place to continue to run the business, then a sale to a private equity fund may be right for you. A private equity investor is not going to take over and run your business, so this type of deal is only really suitable if you have the right management team in place and a clearly defined growth plan.

It is often the case that a private equity fund will insist that you continue to be part of the leadership team of the business for up to 3-5 years and retain a stake. It may also be that your involvement reduces over that time and that you work with the Fund to recruit your long-term successor.

Benefits of a Private Equity Fund acquisition

• You are more likely to be able to continue to retain some control and a stake in your business.
• After realising some immediate value, allowing you to de-risk your exposure to what is likely to be your main asset, you will have the opportunity to realise more value on the subsequent deal or deals, for example, when an onward sale occurs in 3-5 years’ time.
• A PE fund backer will provide funding for growth plans and future acquisitions, along with additional skills such as corporate discipline, strategic rigour, and a wider pool of knowledge around the board table, helping you to accelerate your growth plans.

 

Overview

The acquisition market remains buoyant, and we are seeing more ‘staged’ deals, where business founders retain a share in the business for a period of time. In the current climate, with uncertainty this type of partial deal can be more attractive for both the acquirer and the seller. It also provides more opportunity for you to benefit from an uplift in value following the deal or subsequent transactions.

Regardless of which type of deal is best suited to you, there is a sophistication needed to negotiate the right deal in all respects. It’s crucial that you get professional advice from a financial, commercial and legal perspective.

Springboard Corporate Finance can support you throughout the sales process and advise you on the best routes for you to consider. Contact us for help and advice on the best option for you to sell your business.