With extensive experience in advising on disposals, our Corporate Finance Partner, Michael Smith shares his advice…
Following on from my previous blog, I have set out below some of my observations when getting ready for a disposal:
- Give yourself time
- Pay attention to your market
- Build a repeatable business
- Divorce management from ownership
- Make space for the opportunistic buyer
- Build the profile of your business
1 Devote time to the exit process
Research has shown that better exits are achieved from sales processes that are planned well in advance. Private Equity investors are a prime example of shareholders focused on exit; their planning will often start before an investment has been made.
So, start now. Experienced advisers like ourselves can do a discrete amount of work on examining your business to see what key issues need to be addressed in the short and medium term
2 Don’t ignore your market
Business owners often ignore the dynamics of their market. Try to gain an understanding of what’s happening in the UK market, the market leaders, which direction they are heading and why. It’s important to understand why changes are happening and whether you need to follow, otherwise you may be following a strategy that is unattractive to buyers. Premium prices are paid for niche players, not “me-too” businesses.
3 Build repeatability in to your business
Buyers will pay more for businesses that show predictable and growing profits, and predictability comes in many forms. For an IT business, it may be maintenance revenues; for an engineering firm, it may be recurring business from a long standing customer. The flip side is that businesses will struggle to find a buyer if they have short order books and no consistent customers.
4 Move away from management
Convincing a buyer that he/she is not needed in management is one of the major issues facing any business owner wishing to sell. The only way to prove this is to be on holiday through the sale process!
Over-reliance on the vendors will impact on the sale process. Often, a buyer cannot be convinced that the vendors are not needed. Alternatively, the up-front price will be reduced and an earn-out mechanism will be used to ensure the business will continue to perform post-purchase.
Planning the vendor’s gradual move away from hands-on management is one of the most important and difficult steps in the planning stage of a disposal.
5 Opportunity knocks
Increasingly, trade buyers and private equity firms are not waiting until an official sales process starts. They will now often approach businesses directly, trying to avoid a competitive auction process. You should anticipate such approaches into your disposal plan by being able to provide an interested party with a synopsis of your business (after they’ve signed a NDA!). This will quickly get rid of time-wasters and control the flow of information.
6 Be more visible
Many successful businesses choose to hide their light under a bushel. If you’re thinking of selling, I’d advise against doing this. This may involve a PR campaign, particularly one focused on social media.
An effective way to increase your profile is to enter awards. It’s more useful to focus on industry and trade events rather than local business awards. If you’ve got a good story to tell, demonstrate this to the people in your industry and then buttonhole them at the bar!
If you would like to talk to us about selling your business, please contact Michael Smith at firstname.lastname@example.org or call 0191 2268 353.